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Author: 


Kulp,  Clarence  Arthur 


Title: 


The  discounting  of 
dividends  by  the  stock 

Place: 

Philadelphia 

Date: 

1923 


rv  wmm  m. xw^frnfc' 


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COLUMBIA  UNIVERSITY  LIBRARIES 
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Kulp,  Clarence  Arthur. 

The  discouiitiug  of  dividends  by  the  stock  markets 
Westbrook  pubhshing  co.]  1923.  ^ 

100  p.  incl.  taU^    23**, 

Thesis  (PH.  D.)~-University  of  Pennsylvania. 
Bibliography:  p.  100. 


1.  Stock-exchang^U.  S.    2.  Securities-U.  S.    3.  Stocks.       i.  Title. 

^\     ryr........      ....  24-12133 


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BIBLIOGRAPHIC  IRREGULARITIES 

MAIN  ENTRY:    Kulp.  Clarence  Arthur 

The  discounting  of  dividends  by  the  stock  markets 


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I 

UNIVERSITY  OF  PENNSYLVANIA 


THE  DISCOUNTING  OF  DIVIDENDS 
BY  THE  STOCK  MARKET 


BY 


CLARENCE  ARTHUR  KULP 


r 


A  THESIS 

PRESENTED  TO  THE  FACULTY  OF  THE  GRADUATE  SCHOOL   IN 

PARTIAL  FULFILMENT  OF  THE   REQUIREMENTS  FOR 

THE  DEGREE  OF  DOCTOR  OF  PHILOSOPHY 


PHILADELPHIA 
1923 


'5T«s 


^^ 


Columbia  Winibtviity 

in  tde  Citp  of  Beto  f^orfe 


LIBRARY 


School  of  Business 


1 


\ 


I 


THE  DISCOUNTING  OF  DIVIDENDS 
BY  THE  STOCK  MARKETS. 


A  THESIS 

PRESENTED   TO   THE   FACULTY   OF   THE   GRADUATE    SCHOOL    IN 

PARTIAL   FULFILMENT   OF   THE   REQUIREMENTS   FOR 

THE   DEGREE   OF   DOCTOR   OF   PHILOSOPHY 


BY 

CLARENCE  ARTHUR   KULP 


PHILADELPHIA 
1923 


Copyright,  1924 
By 


Clarence  Authur  Kulp 


U 


TABLE  OF  CONTENTS 


I 

PAGE 

The  Theory  of  Stock  Market  Discounting 

II 

The  Discounting  of  Cash  Dividends ^^ 

III 

The  Discounting  of  "Rights"  and  Stock  Dividends 49 

.'I!..'''* 

IV                                % 
Resum6 5* 

Appendic. 
Appendix  A.    Stocks  Announcing  Cash  Divi6^^ 61 

Appendix  B.    Cash  Dividends.    Original  ItemU  Classified  According  to 
Degree  of  Discounting  Effectiveness 65 

Appendix  C.    Stocks  Declaring  "Rights"  and  Stock  Dividends 92 

Appendix  D.    "Rights"  and  Stock  Dividends.    Originalltems:  Classified    95 
According  to  Degree  of  Discounting  Effectiveness 

Bibliography 100 


THE  DISCOUNTING  OF  DIVIDENDS  B^    I  HE  S20CK   MARKEl 


Chapter  I 


THE   THEORY    OF   STOCK    MARKET    DISCOUNTING 


^0 


,y 


r 


The  General  Meaning  and  Scope  of  Discounting 

Those  interested  in  organized  stock  exchanges  and  their 
functions  claim  for  the  stock  market  a  very  valuable  function, 
that  of  discounting.  By  "discounting"  is  meant  the  faculty  of 
predicting  future  events,  general  and  specific.  It  is  said,  for 
example,  that  general  business  conditions  are  forecast  by  this 
market  mechanism,  much  in  the  same  way  that  a  barometer 
forecasts  future  atmospheric  changes.  The  trend  of  stock  prices, 
while  rising  in  response  to  the  influence  of  business  prosperity, 
rises  in  advance  of  the  actual  materialization  of  the  prosperity 
itself.  While  stock  prices  are  a  result  of  the  interaction  of 
numerous  price  factors,  such  as  the  level  of  commodity  prices, 
the  current  interest  rate,  and  the  position  of  business  in  general 
in  the  trade  cycle,  stock  prices  anticipate  this  interaction  of 
forces  which  produces  them.  Before  the  price  factors  make 
themselves  generally  evident,  they  are  estimated,  and  their 
effect  on  the  prices  of  various  kinds  of  stocks  gaged. ^ 

Discounting  by  the  stock  market  is  said  to  be  made  possible 
because  those  who  make  a  business  of  trading  in  stocks  are  to 
a  large  degree  specialists.  It  is  impossible  for  one  man  or  for 
one  group  of  men   to  be  informed  exactly  regarding  all   the 


«  "Although  the  trend  of  stock  prices  moves  ahead  of  the  trend  in  general  conditions.  It  i« 
nevertheless  an  effect  and  not  a  cause  of  the  improvement  or  depression  that  it  precedes.  Stock 
exchange  transactions  are  valuable  solely  as  representing  the  general  opinion  as  to  the  course 
of  events  and  not  as  a  factor  with  direct  influence  upon  succeeding  developments."  David  F. 
Jordan,  "Business  Forecasting,"  pp.  168-171. 

"Thus  prices  in  an  organized  market  adjust  themselves  through  the  forces  of  supply  and 
demand  almost  automatically  and  usually  in  advance,  to  changes  in  the  basic  values.  .  .  . 
As  a  rule,  owing  to  speculative  factors,  prices  will  rise  before  the  rise  in  values  occurs,  or  will 
decline  before  values  actually  diminish."  J.  Edward  Meeker,  "Work  of  the  Stock  Exchange," 
p.  386. 

"When  the  event  actually  happens,  it  results  in  no  great  disturbance  to  values  as  was  ex- 
pected. Is  it  not  better  that  this  discounting  of  future  possibilities  should  occur — that  the 
effect  of  a  given  cause  acting  upon  the  market  should  be  felt  by  graded  steps  instead  of  coming 
like  a  cataclysm?"    Charles  A.  Conant,  "Wall  Street  and  the  Country,"  pp.  95-96. 


i  THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 

securities  dealt  in  on  a  large  exchange.     Therefore,  traders 
have  devoted  their  efforts  to  particular  classes  of  securities- 
some  speciahze  in  steel  stocks,  some  in  railroad  stocks,  some  in 
industrials  of  various  kinds.    Since  by  far  the  greater  part  of 
the  transactions  on  such  a  representative  exchange  as  the  New 
York  Stock  Exchange  are  speculative  in  character,*  that  is 
are  operations  of  professional  traders,  security  prices  represent 
largely  the  composite  estimate  of  experts.3     The  continuous 
nature  of  the  stock  market,  due  to  the  presence  of  a  sufficient 
number  of  buyers  and  sellers  on  each  business  day  to  insure 
constant  quotations  of  prices  on  listed  securities,4  contributes 
to  the  success  of  the  market  in  exercising  the  discounting  func- 
tion    The  value  of  stock-market  opinion,  no  matter  how  expert, 
would  be  decreased  tremendously  if  expressed  in  price  quota- 
tions  only  infrequently. 

But  not  only  is  it  said  that  the  stock  market  furnishes  expert 
opmion  as  to  the  value  of  securities,  it  is  said  to  furnish  this 
opmion  in  advance.  These  market  opinions  registered  in  the 
form  of  stock-price  quotations  are  based  not  on  conditions  of 
the  moment,  that  is,  on  current  price  factors;  they  are  attempts 
to  estimate  and  measure  the  effect  on  various  kinds  of  securities 
of  future  conditions  not  yet  generally  and  piiblicly  known. 
Speculators  are  said  to  be  a  highly  informed  group  of  business 
men,  possessing  and  utilizing  information  unknown  or  un- 
noticed by  the  general  public.    They  are  said  to  be  acting  usually 


;  "f  ^^^  »;°"P  (of  speculators)  pursues  its  own  object  and  renders  its  particular  service 
y^the  combined  effect  of  their  efforts  is  a  huge  increase  in  the  volume  of  transacdl  on   he 
market.      S.  S.  Huebner.  "The  Stock  Market,"  p.  22. 

if  ZI^^  T''*'  ''  '''''  "''^  ^  *^"°^"  P'""«^"«  ^''^^'  ^"^  '^^Jther  in  the  wind.    As  a  whole 
it  represents  a  senous.  well-considered  effort  on  the  part  of  far-sighted  and  well-infrrm«i 
men  to  adjust  prices  to  such  values  as  exist  or  which  are  expected  to  exist  in  the  not  t«,  reLo^ 
future.      S.  A.  Nelson.  "The  A.  B.  C.  of  Stock  Speculation."  p.  44. 

"This  prophetic  quality  of  stock  exchange  prices  is  imparted  to  them  by  the  invariably 
accurate  group  judgment  of  thousands  of  buyers  and  sellers  throughout  the  nation  Teg^i^ 
mg  future  or  prospective  values."    J.  Edward  Meeker.  "The  Work  of  the  Stock  E^JilLn^?^ 

J"t  "'T'T^'^'^^l^''^  "^"^  ^  ^^^""^  ""'  °°^  ^^«^«  ^"y  security  listed  in  that  market 
may  be  bought  and  sold  at  any  time  during  business  hours  at  comparatively  sma  1  varTat  on. 
from  the  current  price."    S.  S.  Huebner.  "The  Stock  Market."  p  2?  variation. 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


ahead  of  current  conditions — sometimes  anticipating  events  as 
long  as  two  years  in  advance. * 

It  is  not  intended  to  imply  that  the  mere  fact  of  specializa- 
tion in  speculation  explains  discounting  completely.  No  matter 
how  closely  the  speculator  follows  his  particular  stock  or  class 
of  stocks,  as  an  individual  he  is  not  infallible.  Discounting, 
while  depending  basically  on  more  or  less  precise  information, 
is  the  expression  of  group  judgment  rather  than  of  individual 
judgment.  The  controlling  factor,  naturally,  is  the  element 
of  information,  since  the  average  judgment  of  the  uninformed 
would  be  of  practically  no  value. 

It  is  of  importance  to  note  that  the  events  which  the  stock 
market  claims  to  discount  are  of  only  two  kinds.  They  are, 
first,  those  events  which  are  general  in  character,  as  the  general 
conditions  of  business,  which  are  major  price  factors  and  are 
susceptible  of  prevision;  second,  specific  events  in  the  market 
itself,  such  as  announcements  by  a  corporation  of  its  intention 
to  pay  a  cash  dividend,  or  to  issue  to  its  stockholders  "rights" 
or  privileges  to  purchase  additional  shares  of  stock.  Certainly 
the  market  does  not  claim  foreknowledge  of  every  event,  par- 
ticularly those  of  minor  importance  and  accidental  in  character. 

For  example,  it  is  pointed  out  that  the  panic  of  November, 
1907,  was  indicated  by  the  stock  market  as  early  as  October, 
1906,  when  general  stock  prices  began  to  drop  rapidly,  despite 
a  bustling  period  of  prosperity  generally.  When  the  panic 
itself  occurred,  the  market  not  only  was  not  caught  unawares, 
but  was  already  starting  upward.  The  panic  had  been  dis- 
counted and  its  effects  had  been  liquidated  in  the  stock  market 
a  year  before.  Again,  the  stock  market  began  its  recovery  in 
November  of  1907.  General  business  conditions  showed  no 
improvement  until  a  full  year  later.  The  most  recent  illustra- 
tion of  discounting  cited  is  the  action  of  the  stock  market  after 
the  war.  As  early  as  November,  1919,  stock  prices  declined, 
in  face  of  the  tremendous  boom  of  after-war  prosperity  through- 
out the  whole  country.     Business  in  general  did  not  begin  to 


>  "Without  an  exception  every  business  depression  or  boom  in  this  country  has  been  dis- 
counted by  our  security  markets  from  six  months  to  two  years  before  the  dull  times  or  pros- 
perity became  a  reality."    S.  S.  Huebner,  "The  Stock  Market,"  p.  36. 


8 


THE  msCOVNT.^a  OF  D.V.UENDS  BY   THE  STOCK  MARKET 


ji     I 


liquidate  until  the  spring  and  summer  of  the  next  vear     Ann. 
ently   the  stock  market   had  expected   thltT   a         ^^ 
come,  and  had  registered  that^^ati  'n"    ^Wt"  mT 
stock-market  prices  reached  their  lowest  poin^  fn  2  H        ' 

in  genera,  bulr'"     dtr  nT  utr;9T?■rH"^""'°" 
«  begin  to  show  signs  of  ^tl^  1';  Jireo""^'"^^^  '" 

ve^  cl^e  connt'*  ''"  ?  "''  ""  *"^^°-*  events  having  a 
seclitts      T,  ^'^f'  P^'-'i^lar  securities  or  groups    of 

tr;rLu:trTto\rrer^.HgS^^^^^^^ 

iilustration  of  a  stock-markeJ^Lt  :t h  is"  is^co^S^  *Vh: 
announcement  of  a  corporation's  intention  to  p"  £  regll, 

Ixpecled.  "'''"''""  "  *'^^'  ^'^^  announcement  is  fully 

The  Literature  of  Stock  Market  Discounting 

the  oneratinn   ^t  tu-     ■  market.     Proofs  of 

e  operation   of  this   important  function,   however    are  ron 

con...... .  ™,  coSSr^o'  j;.r,L"Li.:;."  t 

An.l.„e.    cTZiil^^.l:^::^:^;-:^'''''''^-   «='-"•'  S.a..tlca,  OrganUation. 
business  conditions  provides  P  "ro^d  sc„u«  ^6^::^'"''"?'"''^  ^'°^^  "*''  -«  «---' 

Research.  Harvard  University,  Cambridge  Mass'  "''    <=°»""««  <>"  Economic 

P.  2?2^rAl:t|De»TnrL'„1"c:o.r  '"Ih^  ^''"'""■"'  ^°"-  -■'C-^-^-^  Vo,.  IV 

-urea  by  .Mr.  Mears  artlli^^^  tolhis  s  ^1':  c"'^  ""."'t"  ™'^-    -^"^  '^^^' 

«vuicu  ui  tms  study  are  compared  in  Part  III. 


THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK   MARKET  • 

SO  little  Study.  In  the  great  majority  of  cases  in  which  dis- 
counting, general  or  specific,  is  discussed,  writers  are  content  to 
support  their  claims  with  general  or  isolated  illustrations.' 
Often  statements  are  made  and  no  exact  proof  of  any  kind  is 
submitted.'*' 

Scope  of  Present  Study 

It  is  the  purpose  of  this  study  to  test  the  validity  of  the  claim 
that  the  stock  market  discounts.  Since  the  subject  of  the  dis- 
counting of  general  business  conditions,  as  contrasted  with  the 
discounting  of  specific  events,  has  received  by  far  the  most 
attention  at  the  hands  of  students,  the  present  study  will  be 
confined  to  an  examination  of  the  discounting  of  specific  stock- 
market  events.  As  a  type  of  specific  event  closely  connected 
with  the  stock  market,  the  discounting  of  dividends  will  be 
investigated.  Dividends  are  of  two  general  kinds:  (1)  Cash 
payments.  (2)  Allotments  of  additional  stock.  This  disburse- 
ment of  additional  stock  may  be  either  at  a  fixed  price  per 
share  to  the  stockholder,  usually  below  the  market  price  of  the 
stock  already  on  the  market,  in  which  case  the  right  to  the  dis- 
bursement is  called  a  stockholder's  right  or  privileged  sub- 
scription; or  it  may  be  given  the  stockholder  with  no  charge 
whatever,  when  it  is  called  a  stock  dividend.  A  stock  dividend 
is  simply  a  privileged  subscription  given  free  of  charge.  With- 
out entering  into  the  details  of  the  advantages  and  disadvantages 
to  the  shareholder  of  the  issuance  of  rights  and  stock  dividends, 
it  is  sufficient  to  say  that  the  disbursement  is  valuable,  if  at  all, 
because  the  shareholder  expects  either  a  continuation  of  the 
usual  rate  of  dividend  on  the  increased  number  of  shares,  or  a 
total  dividend  (net  rate  of  return)  on  all  the  shares,  old  and  new, 
greater  than  the  return  on  the  old  shares.  It  should  be  added 
that  in  the  cases  of  certain  stocks,  issued  by  corporations  having 
favorable  possibilities  of  future  expansion,  the  privilege  to  sub- 
scribe may  be  valuable  primarily,  as  a  chance  for  large  future 


•See  David  F.  Jordan.  "Business  Forecasting."  pp.  16S-I71.  Also  J.  Edward  Meeker. 
"Work  of  the  Stock  Exchange."  pp.  386-388.  Also  Charles  A.  Conant.  "Wall  Street  and  the 
Country,"  pp.  95-96. 

"  See  Charles  A.  Conant,  op.  cit.    Also  David  F.  Jordan,  op.  cit. 


10 


THE  D.SCOV^rmc  OF  VIV.DESVS  BV  THE  STOCK  MARKET 


chances  on  receivi„X^oLrre;;tut  '^'^^"'  ^"'  '^'' 
diSe'nrrnTrX,"'  ?'  ''?'""**  "^  non-payment  of  cash 
ably  thetrittrn".^^^^^^^^^  -  P-b- 

Every  business  day  in  theTear  I-'^'T  '"  '^'  ''"^^  '"^^''"• 
the  country  decide  lo  rl^    '  T'^'  °^  corporations  all  over 

increase  it^o  rSuce  t  oTtn      '  •'''"  "'""'  ^'"'^^"^^  '^'^'  ^o 

ment  or  non-payment-arl  the  tl«?  P^bab.ht.es  of  their  pay- 
the  prices  of  stock,  Th^iT,^?^'*  ""^'^  ^^*=t«^  influencing 
eamfng  Iwer^f  th.         "^'"^  '^  ^''^  '"^^'^"'^  ^^i^f  test  of 

tion.  ?  ":nC^:;Xnrrorih:tr^^^^^ 
orrrri^==rstt~™^^ 

steadily.  .itHou,  a^^nc^ 2^  5^^^.^"--^  --'- 
that  h:^^StX?"  ^"--  ^ven  though  it  is  proved 
crease  in  dSend  t    tTT  *''  ^""°"«<=--ent  of  an  i„- 

dends  are  discounted  m  =.   "  /•         '^  ^°  ^"""^  that  divi- 

of  cases  is  vaTuabie   Lut  Th""  r^'"-^^"  °^  '''^  *°*^'  """"ber 

acter.     BusS  s  L     „"  tor'tr*"" /'  "^^^*'^^  '"  '^''- 
notonly«,Ae/Aeror««/'H^     !'       r   =P^<^"'^tor  wish  to  know 

of  the  stock  market    buT^,       ^°^  '"^"^^  "^^"*^  '^  ^  f"""'"" 
they  can  take  adtl.^i'g:  of'^^^^^^^^^^ 
scope  of  the  nrpsont  „t„j.   t.      t  """""g.     ineretore,  the 

I    r,ri!^   -^    .    "^^  ^^^  b^^"  ™ade  fourfold: 
1.  Cash  dividends  (subject  matter  of  Chanter  U)-   f„^  tu 

yZV'T''''  '^'''^^^  ''  '^^  stock'Srkef  Ir    pit 

«cA  rf«c.«„/.„g,.  or  Wa;i«li  ^''^/PP'-'fnate  /.V«.  <,/ 
foretell  the  eve^t?  "^  '^""*''  ''°''  ^''^  ''"^^  ""^--ket 

IIIV  1?^^T,.°!f  ^'"^V^''^''"^^  (^"''J^"  matter  of  Chapter 
111)  •   (a)  The  degree  of  discounling  efRciencv     (h^  Th^  '-"^Pt^^ 

mate  time  of  suck  discounting.         ^        ^-    ^  ^  ^^^  ^PP''^^" 


THE  DISCOUNTING  OP  DIVIDENDS  BY  THE  STOCK  MARKET  11 


Chapter  II 
THE  DISCOUNTING  OF  CASH  DIVIDENDS 

A.  The  Degree  of  Discounting  Efficiency. 

Introduction.— As  has  been  indicated  in  the  previous 
section,  the  announcement  of  the  payment  or  non-payment  of 
a  dividend  is  probably  the  most  important  single  event  taking 
place  in  the  stock  market.  There  is  a  direct,  constant  and 
gradual  effect  of  dividends  upon  the  prices  of  stocks.  From 
one  ex-dividend  date  until  the  next,  all  other  things  being  equal, 
the  price  of  a  stock  should  be  increased  daily  by  the  amount 
of  the  dividend  accrued.  Stocks  are  sold  inclusive  of  the  accrued 
dividend,  and  one  indication  that  speculators  believe  that  the 
stock  market  discounts  the  payment  or  non-payment  of  a 
dividend  is  that  stocks  are  sold  "flat."  This  is  exactly  the 
opposite  of  the  procedure  in  this  country  with  bonds,  which 
are  sold  "with  interest,"  or  in  other  words,  with  interest  added 
from  the  last  interest  date."  The  test  to  determine  the  dis- 
counting or  non-discounting  of  a  dividend  announcement  is 
whether  there  is  any  considerable  reaction  in  the  price  of  the 
stock  upon  the  announcement  of  the  dividend.  (By  the  term 
"reaction"  as  here  used,  is  meant  any  price  movement  indicat- 
ing that  the  announcement  is  not  completely  expected.  For 
example,  a  reaction  in  the  case  of  an  announcement  of  dividend 
increase  would  be  a  sharp  rise  in  the  price  of  the  stock.)  The 
day  of  the  announcement  of  the  dividend  must  not  be  con- 
fused with  the  ex-dividend  date.  The  official  announcement 
of  the  dividend  by  the  corporation  specifies  the  date  on  which 
the  stock  will  sell  ex-dividend,  that  is,  exclusive  of  the  dividend. 
The  ex-dividend  date  is  the  day  of  record  as  of  which  stock- 
holders whose  names  appear  on  the  transfer  books  of  the  cor- 
poration are  entitled  to  receive  the  dividend  announced  some 


*  The  only  exceptions  to  this  rule  occur  in  the  case  of  income  bonds  and  defaulted  bonds. 


/ 


X 


12 


THE  mscovmmc  of  d.vwesds  by  the  stock  market 


thp  Pv^T,^^  ^  *•  •         ^"^^  ^"^  occurrence  or  non-occurrence  of 
the  stock  wilffln  h  U  "'y  "'"  °"  ^'''^  d^t«  the  price  of 

situation  correctlv  int  hi  ^^  "T-*''''^*  ^^  diagnosed  the 

has  been  ZZl'  ■         T  ^""^"'^  ^  '^^''^^'"^  «"d  the  dividend 

forl'c  Jter 'n7  H^Tr  '"^^  '^'^^"^>^  ^^  '^'  ^'^^^  "^^^^^et  as  a 
analyse    h.  '""^  announcements,  it  is  not  essential  to 

o^  Ti  s:dTTn:e"r^r'^  ^~^^"^  ^^^^^-^' 

th;,t  th.  .!f     1  ^'  ^'''"  ^^^  ^ss^"ce  of  discounting  is 

timthe  actual  announcement  of  a  dividend  causes  no  surprfse  ' 

•Regular  way  delivery,  the  most  usual  contract. 

if  theday  of  theannouncemenUskTurday  the^avr        "  '^"  '°^  '^"""«-    ^^  «^-Ple! 
«This  statement  has  no  referent  [ft  he  tn,         .'1'  ^°°*^""«'"e«t  would  be  Monday 
^liacussed  later.  "*  '°  ^''*  '''^^^^"'  ^^  determining  the  r,m.  of  discounting 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET  13 

The  most  important  task  in  testing  the  validity  of  the  theory 
that  the  stock  market  discounts  dividends  is  to  ascertain  what 
happened  to  the  price  of  the  stock  on  the  day  of  the  announcement. 
But  the  full  effect  of  an  announcement  might  not  evidence 
itself  until  the  day  after  the  announcement,  due  either  to  the 
publication  of  the  announcement  after  the  close  of  the  stock 
exchange  for  the  day  or  to  the  fact  that  a  stock  with  a  narrow 
market  might  not  adjust  itself  as  rapidly  to  market  conditions. 
Therefore,  the  price  behavior  of  a  stock  on  the  day  after  the 
announcement  also  is  important.  These  then  are  the  two  essential 
days  for  which  price  data  have  to  he  collected.  ^  In  addition,  the 
prices  of  dividend  announcing  stocks  three  days  before  the 
announcement  are  used  in  this  study  simply  to  establish  a 
standard  of  comparison  or  base  in  calculating  an  index  number  of 
stock  prices.  ^  Likewise  the  prices  on  the  day  before  the  an- 
nouncement are  used  in  order  to  calculate  the  amount  of  price 
increase  or  decrease  on  the  day  of  the  announcement  over  the 
previous  day.  The  result  secured  is  a  picture  of  the  behavior  of 
the  dividend  announcing  stock  at  the  time  of  the  announce- 
ment of  the  dividend,  the  changes  on  the  two  days  referred  to 
expressed  as  percentages  of  the  price  of  the  stock  three  days 
before  the  announcement. 

General  method  of  analysis. — The  original  data  which 
form  the  basis  of  this  part  of  the  study  consist  of  one  thousand 
(1000)  announcements  of  cash  dividends  on  common  stocks. 
Common  stocks  are  used  because  of  their  admitted  greater 
sensitiveness  to  market  conditions.  Preferred  stocks,  having 
certain  characteristics  making  them  more  like  bonds  than  stocks 
(senior  rank  as  stock,  sometimes  the  cumulative  dividend 
feature,  etc.),  are  considered  not  nearly  as  satisfactory  as  market 
indicators.  Of  the  total,  one-half,  or  five  hundred  (500)  are 
announcements  that  the  usual  rate  of  dividend  is  to  be  con- 
tinued. This  class  of  announcements  is  included  for  several 
reasons.     First,  it  constitutes  by  far  the  most  usual  kind  of 


» Perhaps  this  question  arises:  Why  stop  with  the  day  after  the  announcement?  The  an« 
swer  is  that  if  the  study  is  carried  beyond  this  point  factors  connected  with  future  dividend! 
are  increasingly  likely  to  enter  to  complicate  the  analysis.    See  pp.  37-38. 

•  See  pp.  15-17. 


H:f 


14  THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 

announcement,  and  even  though,  a  priori,  it  may  be  reasoned 
that  the  discounting  of  such  announcements  is  perfect  or  nearly 
so  ,it  is  worth  while  knowing  just  how  effective  the  discounting  is. 
Second,  even  though  this  is  the  most  usual  type  of  announce- 
ment, it  is  not  always  a  foregone  conclusion  that  the  usual 
dividend  will  be  continued;  there  is  present  the  element  of 
chance,  especially  in  periods  of  "boom"  and  depression,  that 
the  former  rate  will  be  increased  or  cut.  Finally,  and  by  far 
the  most  important,  the  time  of  discounting  (that  is,  the  amount 
of  advance  notice  given  by  the  stock  market  as  it  forecasts  the 
coming  event)  is  perhaps  as  valuable  in  the  case  of  continuation 
of  the  usual  rate  of  dividend  as  in  the  case  of  changes.  To 
know  when  the  stock  picks  up  in  price  the  greater  part  of  the 
approaching  dividend  in  one  sense  is  more  valuable  in  the 
case  of  dividend  continuations,  because  of  the  very  fact  of  their 
numerical  preponderance. 

The  remaining  five  hundred  (500)  -are  announcements  that 
the  former  rate  of  dividend  is  changed;  three  hundred  (300) 
that  the  dividend  rate  is  increased  over  the  previous  rate; two 
hundred  (200)  that  it  is  decreased.'  This  data  represents  186 
stocks^  and  the  dividend  history  of  almost  every  important 
corporation  in  the  United  States  for  almost  two  decades.  The 
stocks  are  (or  were,  at  the  time  of  the  announcement)  listed 
on  one  or  more  of  six  of  the  leading  stock  exchanges  of  the 
country — the  New  York  Stock  Exchange,  the  New  York  Curb 
Market,  the  Boston  Stock  Exchange,  the  Philadelphia  Stock 
Exchange,  the  Chicago  Stock  Exchange,  and  the  Pittsburgh 
Stock    Exchange.      Naturally,    the    great    majority    represent 


I  *f  J 


»The  exact  dates  of  the  dividend  announcements  are  not  available,  except  in  a  few  out" 
standing  cases,  in  the  columns  of  financial  newspapers  and  magazines.  For  example,  the 
Commercial  and  Financial  Chronicle  each  week  prints  a  very  complete  list  of  the  dividends 
declared  during  the  previous  week,  but  the  precise  date  is  lacking.  This  information  is  found, 
as  far  as  the  author  has  been  able  to  ascertain,  in  one  source  only,  the  daily  news  bulletin. 
From  the  files  of  the  Philadelphia  News  Bureau  was  secured  the  list  of  1000  dividend  announce- 
ments referred  to  above,  covering  the  period  1904-1922,  inclusive.  The  value  of  this  type  of 
financial  publication  as  source  material  is  twofold:  First,  it  is  absolutely  up  to  date  in  its  news 
service;  second,  its  reports  of  directors'  meetings  and  their  dividend  announcements  are  very 
complete  and  reliable. 

•  See  Appendix  A. 


THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK  MARKET  IS 

stocks  listed  on  the  New  York  Stock  Exchange,  the  largest  stock 
market  in  the  United  States.' 

Once  having  secured  the  list  of  dividend  announcements, 
the  next  step  was  to  secure  the  prices  of  the  dividend  announcing 
stocks  on  the  four  days  mentioned  previously.  Most  of  the 
stock-price  quotations  required  are  available  in  the  Commercial 
and  Financial  Chronicle.  However,  since  the  Chronicle  during  a 
part  of  the  period  at  least  did  not  print  daily  prices  for  all  the 
exchanges  represented  in  the  study — notably  the  New  York 
Curb — the  remaining  quotations  were  secured  from  the  Wall 
Street  Journal. 

The  price  behavior  of  each  of  the  1000  dividend  announcing 
stocks  is  analyzed  in  the  following  manner:  The  high  and  low 
prices  of  the  stock  on  each  of  the  four  days  mentioned  previously 
are  averaged  and  considered  as  the  price  of  the  stock.  Using  the 
average  price  of  the  first  of  the  four  days  as  a  base,  the  prices 
on  the  remaining  days  are  expressed  as  percentages  of  100  per 
cent.  Thus  it  is  easy  to  compute  the  amount  of  change  in  price 
on  the  day  of  the  announcement  and  on  the  day  after  the  an- 
nouncement. For  example,  if  the  average  prices  of  Stock  A 
are  as  follows: 

January  2 $90.50 

January  4 90 .  75 

January  5 90. 50  (the  day  of  the  announcement) 

January  6 90. 00  (the  day  after  the  announcement) 

these  prices  converted  into  percentages  of  the  price  on  the 
first  of  the  four  days  are : 

PER  CENT  CHANGE 

January  2 100.0 

January  4 100.3 

Januarys 100.0                       -.3 

January  6 99 . 3                      —  .  7 

or  a  net  decline  for  the  two  days  of  1.0  or  1  per  cent. 

*  Following  is  a  summary  of  the  stocks  classified  according  to  the  exchange  on  which  listed: 

New  York  Stock  Exchange 159 

New  York  Curb 11 

Boston  Stock  Exchange 8 

Chicago  Stock  Exchange 4 

Philadelphia  Stock  Exchange 3 

Pittsburgh  Stock  Exchange 1 

186 


16  THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK  MARKET 


THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK   MARKET 


17 


It  is  not  possible,  however,  to  determine  the  action  of  the 
stock  at  the  announcement  of  the  dividend  without  taking 
into  consideration  one  other  very  important  factor:    general 
stock  market  influences.     Up   to  this  point  no  attempt  has 
been  made  to  ascertain  the  effect  of  general  stock  market  con- 
ditions on  the  price  behavior  of  a  particular  stock.     Stock  A, 
a  steel  stock,  may  drop  in  price  at  the  time  of  the  announce- 
ment, not  because  of  the  effect  of  the  announcement  itself,  but 
because  steel  and  industrial  shares  in  general  decline  as  a  class 
and  carry  Stock  A  with  them.     If  this  general  decline  takes 
place,  it  is  not  correct  to  say  that  Stock  A  drops  in  price;  Stock 
A's  decline  may  be  explained  completely  by  the  general  drop, 
and  in  fact,  if  the  general  decline  is  greater  than  the  decline  in 
Stock  A's  price.  Stock  A  relatively  increases.    In  order  to  calcu- 
late the  influence  of  general  market  factors  on  the  prices  of 
individual  stocks,  an  index  of  general  stock  prices  is  necessary. 
Then  it  is  possible  to  compare  the  price  fluctuations  of  the 
specific   dividend    announcing   stock   with    the   general    stock 
price  level,  determine  the  effect  of  the  latter  upon  the  former, 
and  thus  isolate  those  price  changes  due  to  the  announcement 
alone.    The  price  changes  of  a  certain  stock  at  the  time  of  an 
announcement  can  be  explained  then  in  terms  of  that  announce- 
ment alone,  uncomplicated  by  general  market  influences. 

The  influence  of  the  general  level  of  stock  prices  is  calculated 
as  follows:    An  index  number  of  general  stock  prices"  is  con- 

»•  The  average  daily  prices  of  industrials  and  railroads  compiled  by  the  Wall  Street  Journal 
are  the  basis  of  the  index.  These  daily  averages  are  expressed  in  dollars,  and  are  the  sole 
published  average  of  daily  stock  prices.  Following  is  the  list  of  stocks  making  up  each  of  the 
two  averages: 


Rails 
Atchison 

Baltimore  &  Ohio 
Canadian  Pacific 
Chesapeake  &  Ohio 
Chicago,  Milwaukee  &  St.  Paul 
Delaware  &  Hudson 
Denver  &  Rio  Grande  (pfd.) 
Illinois  Central 
Kansas  City  Southern 
Lehigh  Valley 
Louisville  &  Nashville 
Manhattan  Elevated  Rwy. 
Minneapolis  &  St.  Louis 


Industrials 
Amalgamated  Copper 
American  Can 
American  Car  &  Foundry 
American  Locomotive 
American  Smelting  &  Refining 
American  Sugar  Refining 
American  Tel.  &  Tel. 
Baldwin 
Central  Leather 
Corn  Products 
General  Electric 
Goodrich 
Republic  Iron  &  Steel 


structed  in  the  same  manner  as  is  the  index  of  prices  for  each 
particular  dividend  announcing  stock,  explained  on  previous 
pages.  A  comparison  of  the  price  changes  of  the  dividend 
announcing  stock  with  the  changes  in  price  of  similar  stocks, 
for  the  same  days  then  makes  possible  the  measurement  of  the 
influence  of  the  latter  on  the  former.    For  example: 


DIVIDEND  ANNOUNCING 

STOCK 

1 

GENERAL   STOCK 

PRICES 

PER  CENT 

CHANGE 

PER  CENT 

CHANGE 

NET 
CHANGE 

Jan.  2 
Jan.  4 
Jan.  5 
Jan.  6 

$90.50 
90.75 
90.50 
90.00 

100.0 
100.3 

100.0 
99.3 

•    •    •    • 

-.3 

-.7 

$65.12 

65.18 

64.25 

64.25 

Net  cha 

100.0 

100.9 

98.6 

98.6 

nge  both 

-1.'3 

±0.0 

days. . . 

a      •      ■      • 

-f'l.o 

-0.7 
+0.3 

In  this  illustration,  the  dividend  announcing  stock  declines  in 
price  on  January  5th,  the  day  of  the  announcement,  but  this 
decline  is  fully  explained  by  a  much  greater  decline  on  the  part 
of  stocks  as  a  whole.  In  fact,  relatively  Stock  A  has  risen  on 
January  5th,  since  its  failure  to  decline  as  much  as  the  group 
must  be  ascribed  to  a  specific  influence.  The  action  of  the 
dividend  announcing  stock  on  the  day  after  the  announcement, 
however,  is  contrary  to  the  trend  of  the  group,  and  is  a  real 
decline,  due  to  the  operation  of  a  factor  influencing  the  particular 
stock  alone.  Thus  there  is  a  relative  increase  on  the  day  of  the 
announcement,  which  is  partially  offset  by  a  relative  decline 
on  the  day  after  the  announcement.  The  net  change  of  the 
dividend  announcing  stock  thus  is  an  increase  of  three-tenths 
of  1  per  cent. 


{Continued  from  page  16) 


New  York  Central 

New  York,  New  Haven  &  Hartford 

Northern  Pacific 

Pennsylvania 

Reading 

Southern  Rwy. 

Union  Pacific 


Studebaker 
Texas  Company 
U.  S.  Rubber 
U.  S.  Steel 
Utah  Copper 
Westinghouse 
Western  Union 


^r' 


18 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


Having  analyzed  the  price  behavior  of  the  1000  announcing 
stocks,  It  IS  next  necessary  to  set  up  tests  or  standards  of  dis- 
counting. Then  if  the  price  variation  of  a  stock  falls  within  cer- 
tain limits,  in  other  words,  complies  with  the  conditions  of  the 
tests  to  determine  discounting,  the  announcement  may  be  said 
to  be  discounted.  It  is  not  intended  to  set  up  arbitrary  standards, 
as  will  be  discussed  later,  but  to  lay  down  common-sense  rules 
based  on  observation  of  the  market  itself. 

The  tests  of  discounting.— The  discounting  function  of 
the  market  as  regards  the  announcement  of  cash  dividends  is 
demonstrated  if  the  price  behavior  of  the  announcing  stock  on 
the  day  of  the  announcement  (and  on  the  day  after  the  an- 
nouncement) complies  with  or  falls  within  the  scope  of  any  one 
of  the  following  three  tests:  «  (a)  The  test  of  perfect  discounting. 
{b)  The  test  of  over-discounting,  (c)  The  test  of  effective  dis- 
counting. 

(a)  The  Test  of  Perfect  Discounting 
Irrespective  of  whether  the  announcement  is  of  an 
increased  or  decreased  dividend  or  that  the  dividend  will 
remam  the  same,  a  dividend  is  discounted  perfectly  when, 
on  the  day  of  the  announcement  (and  on  the  day  after  the 
announcement),"  the  action  of  the  dividend  announcing  stock 
IS  exactly  the  same  as  the  action  of  the  general  level  of  prices 
of  similar  stocks.  The  effect  of  the  announcement  is  nil.  The 
results  of  the  announcement  are  completely  calculated  in  advance 
by  the  market.  Whether  the  general  price  level  rises,  falls  or 
remains  the  same,  the  dividend  announcing  stock  conforms 
perfectly  to  the  price  behavior  of  the  group  with  which  it  is 
related.  The  price  behavior  of  the  announcing  stock  is  ex- 
plained perfectly  by  the  influence  of  the  general  factors,  affecting 


«r  '  J  !!.  u  '*'*  "^^^''^  "^'^  '^*  ^"*''''°°  "  '°  «'*^'^«'  dividend  announcements 

are  accounted  or  not.  that  is.  the  percentage  of  cases  in  which  the  market  discounts  Aether 
and  perhaps  more  important  question  will  be  discussed  in  detail  in  later  pages:  How  far  ah'^ 
does  this  discounting  take  place?  *~s«.  auwjuraneaa 

"  Hereafter,  in  the  sections  on  the  tests  of  discounting,  whenever  the  phrase,  "the  day  of 

Is  a,:o"undero:^!     "  ""''  '''  '"^^^^^^-^  ^^^^'  "the  day  after  fhe  anJncement " 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET  19 

all  stocks  of  the  same  general  class  alike.    The  special  factor, 
a  dividend  announcement,  had  no  effect  whatever. 

(b)  The  Test  of  Overdiscounting 

Announcement  of  an  increase  in  dividend. — The  an- 
nouncement of  an  increase  in  dividend  is  discounted : 

(a)  When  the  dividend  announcing  stock  declines  in  price, 
the  general  level  of  stock  prices  remaining  the  same;  or  (6) 
when  the  dividend  announcing  stock  declines  in  price,  and 
the  general  level  of  stock  prices  rises ;  or  {c)  when  the  dividend 
announcing  stock  declines  in  price  to  a  greater  extent  than 
the  decline  of  the  general  stock  price  level,  or  {d)  when  the 
dividend  announcing  stock  rises  in  price,  but  less  than  the 
increase  in  the  general  level  of  prices. 

A  dividend  announcement  complying  with  any  of  these  con- 
ditions would  be  overdiscounted.    For  example,  let  us  take  sub- 
division "(^)"  of  the  above  set  of  conditions.     Suppose  that 
the  general  price  level  of  similar  stocks  rises  from  100  per  cent 
to  102  percent; the  price  of  the  dividend  announcing  stocks  rises 
from  100  per  cent  to  101  per  cent.    The  special  (dividend  an- 
nouncing) group  thus  fails  to  respond  completely  to  the  general 
price  movements  of  its  class.    One  might  reasonably  expect  the 
special  group  to  rise  at  least  as  much  as  other  stocks  of  its  kind. 
For  the  dividend  announcing  stock  to  rise  considerably  more 
would  indicate  a  failure  to  discount  since  it  then  would  be  evi- 
dent that  a  special  factor,  a  dividend  announcement,  is  operative, 
and  is  causing  a  price  bulge  not  characteristic  of  the  class  of 
stocks  as  a  whole.    But  to  increase  less  than  the  general  price 
level  indicates  that  the  announcement  is  just  the  opposite  of 
being  unexpected.    The  news  of  the  announcement,  instead  of 
causing  a  rise  in  price,  causes  a  relative  decline.     In  a  market 
comprising  besides  informed  speculators,  numbers  of  uninformed 
buyers,  it  is  not  reasonable  to  expect  perfect  discounting.     In 
fact,  all  that  students  of  the  stock  market  claim  for  discounting 
is  approximate  accuracy.    In  other  words,  by  their  very  ignorance 
of  the  discounting  function,  the  uninformed  are  likely  to  inflate 
prices  slightly  previous  to  the  day  of  the  announcement.     By 
purchasing  stocks  just  before  the  date  of  the  dividend  announce- 


20 


THE  DISCOUNTING  OF  DlVIDFNn^   nv   -r^tyr.   ^ 

ur   uiviDENDS  BY   THE  STOCK  MARKET 


I 


sell  at  thrJubl  -V      TT""'"*  '"  "  ^■«"^'  *°  speculators  to 
Announcement  of  a  decrease  in  dividend     Th»  , 

rise  in  fh»  „         i        .      '^        *°  ^  greater  extent  than  the 
rise  in  the  general  stock  price  level;  or  (d)  when  the  diviHpnH 

t^r^^rS^ZjtS^:^^^-'  ---  -nr  Ich" 

riv  at  th.  '^"'"'""^  announcing  stock  increas;s 

»-e^;we/>-  at  the  announcement  of  the  so-called  "bad  new,  " 

Tn tad^'of  'u""''*  '"  ^"*""P^*«^  ^•'^  announcemenHnd 

TurtLt  svi'^sf o7  tra"'""^' '''  ^^'^^  ^-- 

rr^Q*.  i«  /'^    !i    .    .  ^"^  announcement  of  the  in- 

cTs^re^veit  Ih^r  ^f  S  ""^  *""  ^"^  ^^""^  ^^"^ 
in  the  case  of  Se"ncreaT  Th.         7^""  T  '^"^  '^'  ^^^""^ 

at  hearing  the  nel     U Tforllt,/"' """^  ""  *'"'"«  ''^  ^" 
hi.v  fnr  ft.  .   '         .        "^*  '■^*®°"  3"  excellent  chance  to 

tion  l7,^''"^^P*«="'^  «■■'  who  basing  his  judgment  on  the  o^ra! 

of  the  sttk   """'"'  '""*^*'''"'  *^^"^^^  -  '"—  in  the  Se 
divlSd  °Tr'  *•'  ^°°«°"««o«  of  the  previous  rate  of 

pHes  with  the  same  conditions  as  aretid' din  ft^rrt:™- 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


21 


dividend.  The  two  types  of  announcement  have  a  common 
characteristic:  they  indicate  good  news  to  the  investor  and 
speculator.  The  continuation  of  the  previous  rate  is  different 
only  in  degree  from  the  increase.  Therefore,  this  kind  of  an- 
nouncement is  discounted: 

(a)  When  the  dividend  announcing  stock  declines  in  price, 
the  general  level  of  stock  prices  remaining  the  same;  or  (b) 
when  the  dividend  announcing  stock  declines  in  price,  and 
the  general  level  of  stock  prices  rises;  or  (c)  when  the  dividend 
announcing  stock  declines  in  price  to  a  greater  extent  than 
the  decline  of  the  general  stock  price  level;  or  (d)  when  the 
dividend  announcing  stock  rises  in  price,  but  less  than  the 
rise  in  the  general  stock  price  level. 


(c)  The  Test  of  Effective  Discounting 

It  is  futile,  of  course,  to  expect  perfect  discounting  or  over- 
discounting  consistently.  For  reasons  explained  above,  approxi- 
mate accuracy  of  discounting  only  is  claimed.  The  diverse 
character  of  the  stocks  makes  anything  more  than  approximate 
accuracy  impossible.  Therefore,  it  is  only  fair  to  credit  the 
stock  market  with  discounting  when  the  failure  to  discount  is 
comparatively  slight.  The  announcement  may  be  said  to  be 
discounted  in  effect  when  such  substantial  accuracy  is  obtained. 
The  conditions  establishing  the  tests  of  effective  discounting 
will  be  described  in  the  following  sections. 

Announcement  of  an  increase  in  dividend. — The  an- 
nouncement of  an  increase  in  dividend  is  discounted  in  effect: 
(a)  When  the  dividend  announcing  stock  increases  in  price 
only  slightly  more  than  the  increase  in  the  general  level  of 
stock  prices;  or  {b)  when  the  dividend  announcing  stock  in- 
creases slightly  in  price,  and  the  general  level  of  stock  prices 
remains  the  same,  or  (c)  when  the  dividend  announcing  stock 
declines  slightly  less  than  the  decline  in  the  general  level  of 
stock  prices. 

It  is  true  then  in  all  three  conditions,  "(a),"  "(6),"  "(c)," 
of  this  test,  the  stock  market  fails  to  some  extent  to  discount. 
Nevertheless,  if  such  deviation  of  the  special  stock  from  the 


'^ 


22  THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 

general  trend  is  relatively  slight,  the  benefits  of  discounting  are 
achieved.  Just  how  large  a  margin  of  error  should  be  permitted 
in  the  price  behavior  of  a  dividend  announcing  stock,  and  still 
consider  the  stock  to  show  effective  discounting,  is  a  debatable 
point.  Certainly  if  the  dividend  announcing  stock  shows  dis- 
counting within  }/^  or  even  1  per  cent  of  accuracy  (that  is,  shows 
a  failure  to  discount  of  not  more  than  J/^  or  1  per  cent)'^  to  all 
intents  and  purposes  discounting  is  demonstrated.'* 

Announcement  of  a  decrease  in  dividend. — The  announce- 
ment of  a  decrease  in  dividend  is  discounted  in  effect: 

(a)  When  the  dividend  announcing  stock  decreases  in  price 
only  slightly  more  than  the  decline  in  the  general  level  of  stock 
prices;  or  (b)  when  the  dividend  announcing  stock  decreases 
slightly  in  price,  and  the  general  level  of  stock  prices  remains 
the  same ;  or  (c)  when  the  dividend  announcing  stock  increases 
in  price  slightly  less  than  the  increase  in  the  general  level  of 
stock  prices. 

Again,  discounting  is  not  perfect  nor  is  there  overdiscounting. 
Apparently,  the  news  of  the  "cut"  in  dividend  causes  a  relative 
drop  in  price.  In  condition  "(a)"  not  all  of  the  decline  in  the 
particular  stock  is  explained  by  the  decline  in  the  general  level  r 
the  excess  decline  is  chargeable  to  the  announcement.  Like- 
wise in  conditions  "(6)"  and  "(c)"  the  effect  of  the  announce- 
ment is  discerned.  However,  it  would  be  unfair  to  charge  the 
stock  market  with  failure  to  discount  when  this  variation  is 
within  the  margins  indicated  above,  for  the  reasons  explained. 

Announcement  of  continuation  of  the  previous  rate  of 
dividend. — The  same  conditions  as  apply  to  the  increase  in 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


23 


"See  p.  26 — (c) — ^for  definition.  The  expressions:  "One  per  cent  of  accuracy";  "2  per 
cent  of  accuracy";  "failure  to  discount  by  1  per  cent,"  etc.,  must  not  be  interpreted,  as  later 
explained  (pp.  27  et  scij.)  as  an  indication  that  the  stock  market  is  partially  unsuccessful  in 
discounting.  As  will  be  seen,  it  is  fair  to  judge  the  market's  capacity  for  discounting  only  in 
comparison  with  the  magnitude  and  importance  of  the  event  discounted.  For  example,  a 
"failure"  of  discounting  of  2  per  cent  is  really  not  a  failure  at  all,  if  the  dividend  increase  dis- 
counted amounts  to  20,  50  or  100  per  cent.  The  expressions  as  used  are  useful  in  this  part  of 
the  study  because  of  the  necessity  of  making  a  classification  of  the  results  for  purposes  of  analy- 
sis. This  classification  of  results  then  is  studied  in  the  light  of  the  events  discounted.  See  pp. 
34,  35.  In  succeeding  pages  it  is  of  the  greatest  importance  to  remember  the  relative  or  com- 
parative nature  of  such  "inaccuracy." 

»*  This  standard  is  checked  later  by  another  method,  and  found  to  be  substantially  sound .. 
See  p.  37. 


the  dividend  rate  apply  to  this  class  of  announcements.     For 
the  details  of  these  conditions,  see  page  21. 

Summary  of  results:  The  degree  of  discoimting  effi- 
ciency of  the  stock  market. — The  analysis  of  the  data  and 
the  results  observed  are  presented  in  the  following  tables.  It 
is  important  to  remember  that  the  price  behavior  of  each  of  the 
1000  stocks  is  analyzed  separately.  The  resume  which  follows 
is  simply  a  summary  of  the  results  obtained  by  application  of 
the  methods  and  tests  of  discounting  discussed  in  the  previous 
section. 

For  the  sake  of  affording  a  number  of  various  angles  from 
which  to  discuss  the  data  and  the  results,  the  data  are  classified : 

(a)  According  to  the  general  nature  of  the  business  of  the 
corpbration  making  the  announcement;  that  is,  whether 
rails  or  industrials. 

(b)  According  to  the  state  of  general  business  conditions; 
that  is,  as  to  whether  the  announcement  is  made  during  de- 
pression or  "boom";  improvement  period,  or  period  of  decline. 
The  general  state  of  business  may  very  well  be  a  factor  com- 
plicating the  function  of  discounting,  since  it  so  radically  affects 
the  prices  of  the  stocks  affected.    While  it  is  true  that  the  method 
of  analysis  described  in  the  previous  section  is  intended  to 
eliminate  the  effect  of  the  general  market  on  the  price  of  a 
particular  stock,  it  may,  nevertheless,  be  true  that  a  particular 
dividend  announcing  stock  follows  the  general  trend  more  sym- 
pathetically in  "boom"  than  in  depression  period,  or  vice  versa, 
and  thus  the  effectiveness  of  discounting  may  be  affected. 

To  calculate  the  effect  of  this  influence,  if  any,  the  period 
under  discussion,  1904-1922  inclusive,  is  divided  into  the  various 
phases  of  the  several  business  cycles  comprised  in  this  period. 
While  a  conventional  division  of  the  business  cycle  is  into  four 
phases — period  of  improvement;  "boom";  decline,  and  de- 
pression— a  glance  at  any  chart  representing  an  index  of  stock 
prices  shows  the  practical  difficulty  of  making  a  clean-cut  divi- 
sion of  a  cycle  into  four  such  periods. ^^    Rather  than  draw  an 


"See  Babsonchart  of  American  Business   Conditions,  Babson's   Statistical  Organization. 
Any  issue.    Also  W.  P.  Hamilton,  "The  Stock  Market  Barometer."    Charts  in  frontispiece. 


iW' 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


THE   DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK   MARKET 


25 


arbitrary  line  and  attempt  to  indicate  precisely  where  one  of 
these  phases  ends  and  another  begins,  the  sub-periods  of  im- 
provement and  "boom"  on  the  one  hand,  and  the  sub-periods 
of  decline  and  depression  on  the  other,  whose  limits  are  unmis- 
takable, are  combined.  The  characteristics  of  the  sub-periods 
so  combined  are  sufficiently  alike  to  permit  the  combination 
for  the  purposes  of  this  study.  That  is,  generally  speaking, 
stock  prices,  as  a  whole,  act  the  same  during  the  sub-periods 
of  improvement-" boom";  also  during  the  sub-periods  of  decline- 
depression.  One  is  a  combined  period  generally  of  rising  prices; 
the  other  generally  of  falling  prices. 

One  further  question  remains:  Should  the  cycle  under  con- 
sideration be  the  cycle  of  general  business  conditions  or  the 
cycle  of  general  stock  prices?  The  cycles  are  not  identical. 
Bank  clearings  of  the  United  States  are  frequently  used  as  an 
index  of  general  business  conditions.  But  if  the  data  for  bank 
clearings  are  plotted  on  a  chart  together  with  the  average  prices 
of  representative  stocks  as  an  index  of  the  stock-market  cycle, 
the  line  representing  the  stock-market  cycle  would,  with  few 
exceptions,  anticipate  the  general  business  line.*^  In  other 
words,  the  stock  market  discounts  not  only  specific  events 
such  as  dividend  announcements,  but  also  general  business 
conditions.  Since  it  discounts  general  business  conditions,  it 
usually  precedes,  in  its  price  changes,  the  changes  in  business 
it  presages.' '  Obviously,  then,  the  two  cycles  cannot  be  used 
interchangeably. 

Since  the  matter  of  a  dividend  announcement  is  entirely  a 
phenomenon  of  the  stock  market,  the  announcing  stock  should 
be  analyzed  in  the  light  of  the  stock-market  cycle,  not  of  the 
general  business  cycle.  As  an  index  of  general  stock  prices  the 
average  daily  index  of  the  Wall  Street  Journal,  referred  to  in 
previous  pages,  is  the  basis  for  the  classification  of  the  announc- 
ing stocks  by  cycle-periods.  And  since  the  price  factors  affecting 
railroad  stocks  are  different  than  those  influencing  industrials, 


'•See  Jair.es  H,  Brookmire.  "Methods  of  Forecasting  Based  on  Fundamental  Statistics,'. 
American  Economic  Review,  March,  1913,  Vol.11,  p.  57. 

"See  Babsonchart  of  American  Business  Conditions,  Babson's  Statistical  Organisation , 
Inc.    Any  issue. 


separate  indices  for  each  are  used.  Although  the  limits  of  the 
cycle-periods  for  the  two  classes  are  substantially  the  same, 
enough  variations  occur  to  make  the  use  of  the  twofold  index 
advisable. 

The  limits  of  the  cycle-periods  so  formed  are  as  follows: 

Industrials. 

The  cycle:  January  1,  1904- November  15,  1907,  inclusive: 

Period  1.    Improvement-" boom";  Jan.  1,  1904  to  Jan.  19,  1906,  incl. 
Period  2.    Decline-depression;  Jan.  20,  1906  to  Nov.  15,  1907,  incl. 

The  cycle:  November  16,  1907-December  23,  1914,  inclusive: 

Period  3.     Improvement-" boom";  Nov.  16,  1907  to  Nov.  19,  1909,  incl. 
Period  4.    Decline-depression;  Nov.  20,  1909  to  Dec.  23,  1914,  incl. 

The  cycle:  November  24,  1914-December  18,  1917,  inclusive: 

Period  5.     Improvement-" boom";  Nov.  24,  1914  to  Nov.  21,  1916,  incl. 
Period  6.     Decline-depression;  Nov.  22,  1916  to  Dec.  18,  1917,  incl. 

The  cycle:   December  19,  1917-August  24,  1921,  inclusive: 

Period  7.    Improvement-" boom";  Dec.  19,  1917  to  Nov.  3,  1919,  incl. 
Period  8.    Decline-depression;  Nov.  4,  1919  to  Aug.  24,  1921,  incl. 

The  cycle:    August  25,   1921-December  31,   1922,  inclusive 
(end  of  period — cycle  not  completed) : 

Period  9.     Improvement- "boom";  Aug.  25,  1921  to 


Railroads. 

The  cycle: 

Period  10. 
Period  11. 


January  1,  1904-November  20,  1907,  inclusive: 

Improvement-" boom";  Jan.  1,  1904  to  Jan.  22,  1906,  incl. 
Decline-depression;  Jan.  23,  1906  to  Nov.  20,  1907,  incl. 


The  cycle:  November  21,  1907-December  23,  1914,  inclusive: 

Period  12.     Improvement-" boom";  Nov.  21,  1907  to  Dec.  30,  1909,  incl. 
Period  13.    Decline-depression;  Dec.  31,  1909  to  Dec.  23,  1914,  incl. 

The  cycle:  December  24,  1914-December  18,  1917,  inclusive: 

Period  14.     Improvement-" boom";  Dec.  24,  1914  to  Nov.  6,  1916,  incl. 
Period  15.     Decline-depression;  Nov.  7,  1916  to  Dec.  18,  1917,  incl. 

The  cycle:   December  19,  1917-June  20,  1921,  inclusive: 

Period  16.     Improvement-" boom";  Dec.  19,  1917  to  May  27,  1919,  incl. 
Period  17.     Decline-depression;  May  28,  1919  to  June  20,  1921,  incl. 


26 


THE  DISCOUNTING  OP  DIVIDENDS  BY  THE  STOCK  MARKET 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET  27 


The  cycle:  June  21,  1921-December  31,  1922,  inclusive  (end 
of  period — cycle  not  completed) : 

Period  18.    Improvement-" boom";  June  21,  1921  to 

Tables  A,  B,  and  C,  which  follow,  summarize  the  results  of 
the  analysis  of  announcements  of  continuation  of  the  same  rate 
of  dividend,  of  increase  in  the  dividend,  and  of  decrease  in  the 
dividend,  respectively.  The  results  are  classified  by  frequencies 
— that  is,  the  tables  indicate  the  number  of  stocks  showing  dis- 
counting within  K  of  1  per  cent  accuracy;  the  number  of  stocks 
showing  between  H  and  J^  per  cent  accuracy;  the  number 
showing  between  J^  and  1  per  cent  accuracy,  etc.  By  the 
expression  "within  1  per  cent  accuracy"  is  meant  that  the  stock 
showed  one  of  the  following  results,  any  one  of  which  establishes 
the  fact  that  the  announcement  is  discounted : 

(a)  Perfect  discounting. 

(b)  Overdiscounting. 

(c)  Failure  of  discounting  so  slight  that  the  price  of  the 
dividend  announcing  stock  did  not  vary  more  than  1  per  cent 
from  the  general  trend.  In  other  words,  the  outside  limit  of 
inaccuracy  of  discounting  is  1  per  cent. 

Columns  1  to  6  then  in  their  order  from  left  to  right  represent  a 
progressively  decreasing  capacity  of  the  market  to  discount. 
The  greater  the  proportion  of  the  whole  number  of  announce- 
ments appearing  in  the  first  three  columns  to  the  left,  the  more 
effective  the  discounting  capacity  indicated.  Each  of  the 
columns  is  in  turn  divided  to  show  the  degree  of  discounting 
effectiveness  both  on  the  day  of  the  announcement  and  for  the 
two  days  combined  (D.A. :  day  of  announcement;  B.D.:  day 
of  announcement  and  day  after  the  announcement  combined). 

Conclusions. — A  study  of  the  tables  on  pages  28-33,  inclusive, 
leads  to  the  following  conclusions. 

(a)  The  stock  market  shows  its  greatest  capacity  for  dis- 
counting, naturally,  in  the  case  of  announcements  of  no  change 
in  the  dividend  rate  (see  Table  A).  Even  in  this  class  of  an- 
nouncements, however,  discounting  is  not  perfectly  shown, 
as  is  indicated  by  the  fact  that  of  the  entire  group  of  these 
announcements,  there  is  discounting  (for  both  days  combined) 


in  82.8  per  cent  of  the  total,  or  17.2  per  cent  less  than  a  perfect 
showing  (using  1  per  cent  of  accuracy  as  the  standard  of  effective 
discounting).  Although  this  is  a  high  percentage  of  cases  in- 
dicating effective  discounting,  the  fact  that  there  is  a  comparative 
failure  to  discount  in  the  case  of  17.2  per  cent  of  the  total  indi- 
cates that  there  exists  an  element  of  uncertainty  even  when  the 
dividend  rate  is  not  changed.^* 

Announcements  of   increases  of  dividends   rank  second   as 
regards  the  ability  of  the  stock  market  to  forecast.     For  the 
day  of  the  announcement,  the  results  show  effective  discounting 
in  68.3  per  cent  of  the  total  number  of  cases;  for  the  two  days 
combined,  effective  discounting  in  66.0  per  cent  of  the  total. 
It  is  true  that  the  results  are  not  as  nearly  perfect  as  for  the 
announcements  of  no  change.     Two  outstanding  factors  must 
be  kept  in  mind  at  this  point,  in  judging  the  discounting  function 
of  the  market.     First,  the  comparative  strictness  of  the  test 
or  standard  which  defines  effective  discounting.    This  has  been 
set  at  1  per  cent,  a  test  which  imposes  rather  narrow  limits  as  a 
basis  of  measurement.    A  glance  at  the  cumulative  figures  in 
Table  B  shows  the  effect  of  analyzing  the  same  results  by  measur- 
ing the  efficiency  of  discounting  within  2  per  cent  of  accuracy. 
Respectively,  for  the  day  of  the  announcement  and  for  the  two 
days  combined  the  results  become  83.0  per  cent  and  80.3  per 
cent.    Second,  and  more  important,  these  results  are  the  more 
significant  when  the  comparative  failure  of  the  market  to  dis- 
count is  studied  in  the  light  of  the  extent  of  the  increases  in  the 
dividend  rates  concerned.     The  failure  of  the  market  to  dis- 
count accurately  the  announcements  of  dividend   increase  is 
shown  to  be  relatively  slight  when  compared  with  the  amounts 
of  the  increases  themselves.     For  example,   in   the  following 
tabulation  it  is  seen  that  although  in  5.7  per  cent  of  the  total 
number  of  announcements  of  increase  (both  days  combined), 
there  is  a  failure  to  discount  the  announcements  by  5  per  cent 
or  more  (that  is,  there  is  5  per  cent  or  more  inaccuracy  of  dis- 
counting), the  fact  that  these  announcements  are  of  increases 
in  dividend  income  as  high  as  200  per  cent,  makes  the  failure 


••The  relative  nature  of  this"failure"  must  be  kept  in  mind.    See  p.  22.  footnote  13. 


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a  06 

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o  >o  o  o 


o  ^  o  o 


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o  o 


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rt  . 

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84.5 

ad 

M   "O   0»   ^   Ov 

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be 

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o     •  o  o    • 

o     • 

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OS       i    <N    —       • 

(N           .-1    O       • 

pg      ■   O   O      ■          CM  ri 

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1  "t 

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oc 

Total  No.  of  cases 
Per.  of   total  case? 

00  <-•  tn  CM  o 


00  ^  <o  ^ 


«   C«   00    Os 


s 


t«  t«   '«>   00   o> 

>o  *n  O'  t^  Oh. 

<0  r«  00  o>  Oi 


09 

CO 


00 


^^ 


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^6?65 


«s  *o 


o  - 


o  o  o  o 


(/I 


o  o  o  o 


«0  m  O  CM 


00 


(S    CM    O    O 


>*    CN 


'*«■*  — 


lO  r^ 


«/j   O    "-1   ^ 


O    00 


00  a  -'  >o      ■ 

<N 
cs   •- 

»-    CN    CS    »^                   «    f^ 

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O  "^   ^   c** 


»H     ^ 


t^     X     •-'     ^ 
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fr>  00 


t>.  ^  o  >/> 

lO     Tt"     ^     — 


S 


O   cs  •*   O   W 


o 


u 


(z. 


w 


O 
03 


^ 

u 


u 

(X, 
(X. 


3 


to  CS  O*  cri  O 


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o  o  t*  o> 


s 


H 

> 

« 

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^ 

to 

^ 

U 

s 

o> 

R 

to 

U 

•O   OO   t*    ^    Os 

»<   •-<  0\  r».  O* 
VO  r*  00  ov  ON 


5>  nP 


6?  6? 


:r:s2: 


JZ   , 


o  vO  s9 


^^5? 


CM  tn 


a 


•o 


n 


<n 


o  o 


o  o 


Si 


8 


lo 


CS 


o  -« 


CO  t>» 


CM 


M     •  o  o 


ui 


cs 


a 


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CM 


o  — 


ro   tN. 


CM 


o  - 


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t^     •  o  o 


c*  t^ 


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O     -H 


fO 

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o 


t  ^ 


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OT 


u 


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t«  . 

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s 
ti 

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00 

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« 

CM    CM    CM    00 

VO 

t^    CO    9 

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CM    00    ^ 

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t^ 

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VO 

r*  00  O 

a 

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O    O    *    M    -M 


O  O  (O  -«  o 


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o  o  >.•  >o  o 


—  6 


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t*    ^    Wi*      I     <S   •-< 


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M  O  fO  «4  O 


00 


o  o  ^  —  o 


00 


«4    «4    C4    <^    M 


00 


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N    •* 


lo  (s  \o  00 


^1     ^jl     ^Jl     ^* 


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m*    w^    t»j    f^ 


W4     Tf     ^     V4 


O   Oi   0»   Os 


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H 


o  <^  o>  o* 

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M  ^  O  00 


00 


o  ^ 


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t^    lO 


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0)  <u 

s  s 

O  *j 

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o  a> 

H  a. 


(*<  O  eo  O  O 

lO  Ok  00  r*  Q 
O  O  to  00  O 

N  «n  o  »^  o 

m  00  M  •->  p 

O  t*  00  Ov  o 

• 

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0 

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s 

o  o  o    ■  o 

o     • 

o  o  o    •  o 

o     • 

o 

O    O    •<       •    N 

t* 

O  O  O      •  «s 

N   00 

t* 

O  O  O      •  N 

M   00 

r* 

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«M    00 

lo 

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o  «<  o    •  o 

—    * 

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o  «  o    •  o 

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00  »o   N      •  O 

(S 

O  f*^  "S      •   <*J 

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1 

PQ 
1^ 

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1    *4 

to 

00 

Total  No.  of  cass 
Per.  of  total  cases 

< 

»; 
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b 


w 


w 


u 


b 


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CO 

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1 

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U 

i 

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o 

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m 

is 

n 

2 

< 

m  o 

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M 

^ 

Q 

o  o  o  o 

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■ 

• 

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O 

• 

1 

• 

A 

^    «-<    N   O 

^ 

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a 

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< 

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1 

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o 

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00 

0 

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• 

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00 

fi 

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00 

H 

^ 

• 

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1  . 

• 

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TC 

Ok 

• 

< 

V4 

- 

Q 

o  o  «  o 

•< 

c*> 

d 

to 

v4 

n 

O  lO  ^  o 

o 

00 

< 

lo 

a 

o  a  M  *4 

N 

to 

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o 

•tJ 

o 

« 

h 

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g 

o 
JQ      . 

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Q 

6    • 

be    . 
(d     . 

C      (0 

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f 

lO    to 

O     CO 
kl    (J 

(/3 

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V4     94 

H 

a< 

o  o  m  <^ 


»o 


;s 


o  * 
00  o- 


t 

m 
U 

s 


«^        «  ro  O  <»> 

lO         -«  00  eo  O 
V>  <0   <0   00   9. 


g?         ^ 


•*V  rl\  ^^    t^   tr. 


«4  to 


w 


•0 


^       ^ 


s 


fO 


5     2 


5     2 


Ok  e*S 

eO         »H 


«S 


«n 


«o 


« 


3 


8 


ea 


V 

(d 


C*      \w 


(0 


CO      U 


^  S  ii  s 


?! 

o  ^ 

Si 


w 


CN     O 

ft    (« 

St3 


13  .O 

.2  S 


o   rt 
S  J3 

If 

•^     OB 

Q    il  oi 


O 


CQ 


H 


«£8 

O,     O    ^ 


s 


..2  3 

*•*  ^3  ^^ 
V 

'<->  u 

?  £  C 

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6  ;g  c 


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s  o  5 
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I 

t 


< 

u 


tfl 


d) 


u 


o 


o 


{X} 


f^ 


b) 


U 


00 

U 


3         .« 

«       « 

• 

•           a 

M                  •**•••- 

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■ 

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Q 

• 

r* 

S      0  «  0  j3 

^  fi 

3                                "^ 

N    CN 

' 
4 

00 

0  «^  0  esi 

«o   fS 

«-» 

nm    ^1 

r^ 

>-»  e«*  0  N 

i«  t' 

«s 

CVJ    (N 

t^ 

'^    «n    0    Ov 

CN 

t*i 

a 

«4    ^4    oa    ^ 

t^  « 

00 

0    ^    0    «• 

(N  <-« 

•^ 

•H     «-l 

0 

0    0    0    10 

l«    lO 

0 

«    0    0    ^ 

«/5    1/5 

0 

0    0    0    •< 

vH    «>iri 

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0    0    0    CN 

r.=! 

<N 

-<  00  0  0 

c^* 

fO 

<*)  00 

«<^ 

v4  (<»  «ri  r^ 

0* 

<N 

1^  10 

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cases 
cases 

o2 

•  0 

0  *j 

^•s 

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t^    *« 

«N    ^    \0    00              1 

0  s 

1 

H  ft. 

n 


0 

0  0  «i<  0  0 

M     ^ 

0 

0     «^     ^     0     VH 

(*)    fN 

0 

0    fD 

0 

»^    »^ 

0  0 

0  0 

0       •" 

0 

—  0  0  0  0 

M     ^ 

0 

0  -*  0  »-l  »i^ 

0 

0  »^  0  0  „ 

ts  « 

00000 

0       • 

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0       ■ 

0 

ro  c>4  (0)  •^  rt< 

0 

<N    (^    t*)    (V)    1/5 

10  0 

-H  0 

cases-- 
cases 

6    <N 

00 

rotal  No.  of 
^er.  of  total 

0« 


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(0 


J 


bi 


b 


12 

Ix) 


u 


(4 


e 

000 

0 

q 

•        •       •        • 
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«S  M  *o  »o 

«* 

0000 

0 

d 

2S5S 

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•      • 

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«M  : 

s 

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a 

g 

u 

2.    .    , 

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c 

10 

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0     **         «         • 

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a 

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n 

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0 

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• 

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0  ««     •  0             -«  •* 

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10  o  o  o 


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S 


M 


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C<l 


00 
V 

i 


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o       10 

f<5  •- 


M 


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3 


00 
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:  Si 

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si 


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%  G 


U         THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 

to  discount  relatively  unimportant.  It  is  manifestly  not  a 
serious  failure  of  discounting  when  the  dividend  rate  is  increased 
from  2  to  4  per  cent  (an  increase  in  dividend  income  of  100  per 
cent),  and  the  stock  market  fails  to  discount  such  an  announce- 
ment even  to  the  extent  of  5  per  cent.  In  many  of  the  cases 
of  an  increase  of  dividend  it  is  impossible  to  calculate  mathe- 
matically the  rate  of  increase  of  dividend  income — when  the 
initial  dividend  is  paid  on  stock  or  a  passed  dividend  is  restored. 
This  increase  cannot  be  measured;  therefore,  the  following  tabu- 
lation is  conservative  in  that  it  indicates  only  those  ranges  of 
increase  that  may  be  mathematically  expressed. 

Table  D 

COMPARATIVE  TABLE— EFFECTIVENESS  OF  DISCOUNTING 
AND  RANGES  OF   DIVIDEND   INCREASE 


ACCURACY   OF 
DISCOUNTING 

EFFECTIVENESS   OF 

DISCOUNTING 

PER   CENT 

RANGES  OF   INCREASE 

IN   DIVIDEND    INCOME 

PER   CENT 

PER   CENT 
WITHIN 

D.A. 

B.D. 

LOW 

HIGH 

?^  of  1 

55.3 

6.3 

6.7 

14.7 

13.3 

3.7 

47.3 
5.7 
13.0 
14.3 
14.0 
5.7 

3.6 
16.6 

6.6 
20.0 
20.0 
25.0 

240.0 
100.0 
200  0 
150.0 
250.0 
200.0 

H—u 

H— 1 

1—2 

2—5 

5  and  over'* 

Total 

100.0 

100  0 

.... 

It  will  be  noted  that  the  absolute  size  of  dividend  increase 
apparently  has  no  effect  on  the  discounting  function  of  the 
market.  By  far  the  greater  number  of  cases  falls  within  the 
first  horizontal  column  (indicating  the  closest  approach  to 
perfect  discounting).  This  column  shows  at  the  same  time  a 
higher  amount  of  dividend  increase  than  any  other  with  one 
exception.  It  is  just  as  easy  to  discount  large  increases  as  small 
— the  nature  of  the  stock  and  of  the  issuing  corporation  seems 
to  have  more  weight  than  the  nature  of  the  announcement. 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET         35 

In  turn,  announcements  of  decrease  of  dividend  are  discounted 
less  effectively  than  are  the  other  two  classes  discussed.  For 
the  day  of  the  announcement  and  two  days  combined,  respec- 
tively, the  percentage  of  effectiveness  of  discounting  (within 
1  per  cent  of  accuracy)  is  47.0  and  46.0.  Here  also,  it  is  proper 
to  analyze  the  discounting  function  of  the  market  in  the  light 
of  the  size  of  the  dividend  reductions  involved.  The  following 
comparative  table  combines  the  elements  desirable  for  a  proper 
analysis. 

Table  E 

COMPARATIVE  TABLE-EFFECTIVENESS  OF  DISCOUNTING 
AND   RANGES  OF   DIVIDEND   DECREASE 


ACCURACY  OF 
DISCOUNTING 

EFFECTIVENESS   OF 

DISCOUNTING 

PER  CENT 

RANGES   OF  DECREASE 

IN  DIVIDEND   INCOME 

PER  CENT 

PER  CENT 
WITHIN 

D.A. 

B.D. 

LOW 

HIGH 

U  of  1 

37.0 

4.5 

5.5 

15.0 

26.0 

12.0 

38.0 
2.0 
6.0 

8.5 
22.5 
23.0 

12.5 

40.0 
20.0 
28.6 
16.6 
20.0 

100 

li — U    

100 

ys     /  i 

U— 1 

100 

/I     ■*■ 

1     2 

100 

2—5 

100 

5  and  ovep» 

100 

Total 

100.0               100.0 

.... 

.... 

It  will  be  noted  that  in  Table  E  the  greatest  percentage  of 
decrease  in  dividend  income  is  100  per  cent  in  each  class.  This 
is  because  the  "passing"  or  non-payment  of  a  dividend  repre- 
sents the  greatest  possible  decline  in  dividend  income,  whether 
the  former  rate  is  1,  2  or  5  per  cent.  The  same  general  char- 
acteristics appear  as  in  Table  D. 

(6)  Analyzing  the  discounting  effectiveness  of  the  stock 
market  from  the  viewpoint  of  the  kind  of  stock  involved  (rails 
or  industrials)  somewhat  the  better  showing  is  made  in  the 
case  of  railroads.    It  will  be  seen  from  Table  F  below  that  while 


*»A  separate  analysis  of  each  item  in  this  group  shows  the  same  results  as  for  the  group 
as  a  whole,  i.  e.,  in  every  case,  the  percentage  of  deviation  from  perfect  discounting  is  more 
than  compensated  by  the  amount  of  increase  in  dividend  incomei 


»•  A  separate  analysis  of  each  item  in  this  group  shows  the  same  results  as  for  the  group  at 
a  whole, ».  «.,  in  every  case,  the  percentage  of  deviation  from  perfect  discounting  is  more  than 
compensated  by  the  amount  of  decrease  in  dividend  income. 


I 


M  THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK  MARKET 

industrials  as  a  class  are  eflFectively  discounted  (both  days  com- 
bined) m  67.2  per  cent  of  the  total  number  of  cases,  railroads 
are  discounted  m  76.9  per  cent  of  the  total  number  of  cases. 
Announcements  of  dividends  by  railroads  make  a  consistently 
better  showmg  regardless  of  the  nature  of  the  announcement- 
contmuation  of  the  former  rate,  increase  or  decrease.  This 
is  without  doubt  due  to  the  fact  that  for  the  greater  part  of 
tne  period  of  time  under  investigation  (1904-1922)  railroads 
as  a  group,  constituted  a  higher  type  of  investment  security 
than  industrials. 

Table  F 
COMPARATIVE  TABLE-EFFECTIVENESS  OF  DISCOUNTING 

(Within  1  Per  Cent  Accuracy) 


THE  DISCOUNTING  OP  DIVIDENDS  BY  THE  STOCK  MARKET 


37 


INDUSTRIALS 

RAILROADS 

CASES    SHOWING    DISCOUNT- 
ING  WITHIN    1    PER  CENT 
ACCURACY 

CASES    SHOWING   DISCOUNT- 
ING  WITHIN    1    PER  CENT 
ACCURACY 

NATURE 

OF 

ANNOUNCEMENT 

NUMBER 

PER  CENT  OF 
TOTAL 

NUMBER 

PER  CENT  OF 
TOTAL 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

A.  Nochangein 
dividend.  .  .  . 

B.  Increase   in 
dividend.  .  .  . 

C.  Decrease  in 
dividend.  .  .  . 

225 

167 

66 

221 
160 

67 

82.7 
68.1 
44.0 

81.2 
65.3 
44.6 

204 

38 
28 

193 

3S 
25 

89.4 

69.1 
56.0 

84.6 
69.1 
50.0 

Total    number 
cases  showing 
Discounting 
within  1  per 
cent 1 

458 

448 

68.6 

67.2 

270 

256 

81.1 

76.9 

(c)  In  analyzing  the  comparative  efficiency  of  the  stock 
market  in  discounting  in  periods  of  boom  and  improvement 
as  contrasted  with  periods  of  decline  and  depression,  there 
IS  remarkably  little  difference  between  the  two.  At  some  points 
the  former  shows  the  best  results;  at  some  the  latter.    If  any 


may  be  said  to  be  superior,  on  the  whole,  the  period  of  boom- 
improvement  shows  slightly  the  better  results.  This  slight 
superiority,  if  it  be  allowed,  is  not  difficult  to  understand  in  the 
case  of  announcements  of  no  change  and  of  increase  in  dividend. 
In  the  period  of  boom-improvement  the  natural  buoyancy  of  the 
general  market  may  well  conceal  relatively  small  failures  to  dis- 
count. The  consolidated  table  below  shows,  however,  that  in 
the  cases  of  decreases  of  dividend,  the  superiority  of  the  dis- 
counting function  is  most  marked.  Such  a  result  seems  to 
point  out  that  the  professional  speculator  is  not  blinded  to  the 
virtues  and  defects  of  a  particular  stock  by  a  general  market 
condition  of  inflation  and  rising  prices.  *• 

Table  G 

COMPARATIVE  TABLE— EFFECTIVENESS  OF  DISCOUNTING 
(Within  1  Per  Cent  Accuracy) 


IMPROVEMENT-BOOM 

DECLINE-DEPRESSION 

CASES    SHOWING   DISCOUNT- 
ING WITHIN    1    PER  CENT 
ACCURACY 

CASES    SHOWING   DISCOUNT- 
ING WITHIN    1    PER  CENT 
ACCURACY 

NATURE 

OF 

ANNOUNCEMENT 

NUMBER 

PER  CENT   OF 
TOTAL 

NUMBER 

PER   CENT   OF 
TOTAL 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

A.  Nochangein 
dividend .... 

B.  Increase   in 
dividend .... 

C.  Decrease  in 
dividend.  .  .  . 

316 
73 

40 

313 
65 

38 

83.8 
57.5 
54.0 

83.0 
51.2 
51.3 

113 

116 

54 

101 

116 

54 

91.8 
67.0 

42.8 

82.1 
67.0 
42.8 

Total    number 
casesshowing 
discounting 
within  1  per 
cent 

429 

416 

74.2 

62.0 

283 

271 

67.1 

64.2 

i\ 


^ 


Supplementary  Method  of  Determining  Effectiveness  of 
Discounting. — ^A  check  on  the  accuracy  and  essential  sound- 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


ness  of  the  method  explained  in  the  preceding  pages  is  applied 
at  this  point.  A  moment's  thought  will  show  that  another 
method  of  testing  whether  the  stock  market  does  or  does  not 
discount  dividend  announcements  is  applicable.  One  way  of 
estimating  approximately  the  ability  of  the  market  to  discount 
is  to  study  the  course  of  the  prices  of  the  stock  for  some  time 
after  the  time  of  the  announcement.  In  the  case  of  an  announce- 
ment of  increase  of  dividend,  for  illustration,  the  stock  should 
reach  its  highest  price  at  or  about  the  time  of  the  announcement 
itself.  If  the  announcement  has  been  fully  expected,  no  further 
considerable  rise  should  take  place.  If  a  considerable  advance 
does  take  place  after  the  news  is  made  public,  it  is  possibly 
an  indication  of  the  partial  failure  to  discount.  If  no  material 
change  in  price  is  shown  after  the  announcement  (considering 
the  general  market  trend),  discounting  is  possibly  indicated. 
For  example,  a  stock  selling  at  40  at  the  time  of  the  announce- 
ment rises  to  45  after  the  announcement  (a  price  change  con- 
trary to  the  general  market).  Such  an  advance  possibly  shows 
failure  to  discount.  The  words  "possible"  and  "possibly" 
are  used  advisedly,  because  while  this  method  of  checking 
(which  we  may  call  Method  2  for  estimating  discounting  effi- 
ciency) is  useful  in  safeguarding  against  essential  inaccuracies 
in  our  first  and  main  method  (Method  1)  it  has  serious  limita- 
tions. First,  it  provides  no  means  of  measuring  the  comparative 
success  or  failure  of  the  stock  market  to  discount.  It  simply 
states  that  the  dividend  is  or  is  not  discounted — no  further 
comparison  is  possible.  Further,  it  is  unwise  to  lean  too  heavily 
upon  Method  2  as  a  positive  index  of  discounting,  because, 
directly  after  the  announcement  of  the  current  dividend  is  made, 
it  must  be  kept  in  mind  that  the  price  changes  of  the  stock  are 
increasingly  affected  by  the  prospects  for  the  next  dividend. 
The  increase  in  price  of  our  stock  might  be  completely  due, 
not  to  the  failure  of  the  market  to  discount  the  current  dividend, 
but  to  its  anticipation  of  the  effects  of  the  coming  dividend 
announcement. 

Likewise,  in  the  case  of  announcement  of  a  decrease,  the  price 
of  the  stock  at  about  the  time  of  the  announcement  should  be 
at  approximately  its  lowest  and  should  not  materially  decline 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


39 


thereafter.    In  the  case  of  a  dividend  remaining  the  same,  the 
same  reasoning  applies  as  to  the  increase  in  dividend. 

Using  Method  2,  not  as  a  positive  test  of  discountmg  effective- 
ness, but  as  a  supplementary  check  on  Method  1,  the  results 
are  highly  interesting.  Invariably,  the  results  yielded  by  the 
use  of  Method  1  are  corroborated  by  Method  2's  results.  That 
is  to  say,  that  adopting  the  test  of  1  per  cent  accuracy  as  our 
standard  of  discounting,  without  exception  the  announcements 
shown  to  be  discounted  by  Method  1  are  shown  also  to  be  dis- 
counted by  the  second  method. 

B.  The  Time  of  Discounting. 

Introduction— General  method  of  analysis.— But  in  addi- 
tion to  knowing  the  percentage  of  cases  in  which  discounting  is 
found,  a  still  more  important  question  arises.    Just  how  far  m 
advance  of  the  event  does  the  market  register  its  forecast  in 
the  form  of  price  quotations?    This  part  of  the  study  consists 
of  an  analysis  of  those  stocks  showing  discounting  as  described 
in  the  previous  section.    Since  in  the  cases  of  these  stocks  no 
considerable  movement  in  the  price  of  the  stocks  takes  place 
at  the  time  of  the  announcement,  the  change  must  have  taken 
place  some  time  previously.    That  is,  if  the  market  discount 
the  continuation  of  the  same  rate  of  dividend  on  a  stock,  and 
no  great  movement  in  price  takes  place  at  the  time  of  the  an- 
nouncement, the  accrued  dividend  must  have  been  added  before 
the  time  of  the  announcement.    At  some  time  previously,  there 
is  a  variation  upward  from  the  market  trend.    This  point  indi- 
cates the  time  of  discounting.    Likewise,  in  the  case  of  a  dividend 
increase,  this  variation  is  upward  from  the  general  market. 
In  the  case  of  a  decrease  the  opposite  is  true;  a  variation  down- 
ward marks  the  time  of  discounting. 

The  time  of  discounting  has  been  localized  by  monthly  periods. 
Using  the  same  method  of  comparing  the  particular  stock  price 
with  the  general  stock-price  level  as  was  used  in  ascertaining  the 
efficiency  of  the  market  in  discounting,  the  comparison  of  prices 
is  carried  backward  from  the  time  of  the  announcement.  No 
arbitrary  standard  is  set  up  as  to  the  number  of  months  withm 
which  to  limit  the  scope  of  this  part  of  the  study.    The  data 


40  THE  DISCOUNTING  OP  DIVIDENDS  BY  THE  STOCK  MARKET 

themselves  determine  how  far  back  the  analysis  is  to  go.  The 
time  of  discounting  is  distinguished  almost  without  exception 
by  that  space  in  time  (monthly  period)  showing  the  greatest 
variation  of  the  dividend  announcing  stock  from  the  general 
market.  However,  in  certain  cases,  where  there  is  more  than 
one  such  variation  in  the  same  direction  of  equal  or  nearly 
equal  magnitude,  the  first  is  taken  as  showing  the  time  of  dis- 
counting. Even  though  the  entire  increase  does  not  take  place 
within  one  monthly  period,  the  earlier  increase  is  the  first  sign 
of  discounting. 

Tables  H,  I,  and  J  which  follow,  summarize  the  results  of 
this  analysis: 


Table  H 

NUMBER  OF  MONTHS  STOCK  MARKET  INDICATES 
ANNOUNCEMENTS  IN  ADVANCE 


IMP.-BOOM 

1 

NO  CHANGE  IN 

r  RATE 

INDUSTRIALS 

•      a 

2 

3 

11 
17 

6 

5 

39 
26.7 

4 

4 
5 
1 

3 

5 
3 

a    • 

1 

1 

6 

•  • 

•  • 

•  ■ 

•  • 

7 

•  • 
«    « 

•  • 

•  • 

•  • 

8 

9 

10 

Total 

1 

3 

5 
7 
9 

11 

11 

4 

11 

37 
25.3 

17 

18 

4 

13 

52 
35.6 

•  • 

•  • 

•  • 

•  • 

•  • 

•  ■ 

•  • 

•  • 

46 
51 
16 
33 

Number 

Total  of  %.  . 

13 
9.0 

5 
3.4 

•   • 

•  • 

146 
100.0 

DECLINE- 
DEPRESSION 

] 

so  CHANGE   IN 

RATE 

INDUSTRULS 

2 

4 
6 
8 

24 
3 

21 

12 
2 

6 
6 

8.7 

1 

1 
1.5 

«  • 

•  • 

•  • 

•  • 

•  ■ 

•  ■ 

•  • 

•    • 
•    • 

•    • 

64 

5 

Number 

Total  of  % .  . 

27     21 
39.130.4 

14 
20.3 

69 
100.0 

THE  DISCOUNTING  OP  DIVIDENDS  BY  THE  STOCK  MARKET  41 


TABLE  n— Continued 


IMP.-BOOM 

NO  CHANGE   IN 

RATE 

RAILS 

20 
16 

1 
4 

41 

25.9 

23 

20 
4 
3 

50 
31.4 

1 

7 
1 
4 

13 
9.1 

2 
1 
1 
1 

5 
3.2 

•  • 

•  • 

•    ■ 

■    • 

a      a 

•      • 

a      • 
a      ■ 

10 
12 

14 
16 

18 

24 

15 

4 

7 

70 
59 
11 
19 

•     • 

Number 

Total  of  % .  . 

50 
31.4 

159 
100.0 

DECLINE- 
DEPRESSION 

NO  CHANGE  IN 

RATE 

4 

RAILS 

11 

13 
15 
17 

7 
2 

9 

3 

1 

13 
45.0 

127 
31.5 

4 

1 

5 
17.2 

108 
26.8 

1 
1 

3.4 

33 

8.2 

1 

1 
3.4 

12 
3.0 

a      a 

•      a 

•     * 

a      a 

•     a 

•     « 

22 

4 
3 

Number 

Total  of  % .  . 

9 

31.0 

29 
100.0 

SUMMARY 

Total  number 
Total  of  % .  . 

123 
30.5 

403 
100.0 

Table  I 

NUMBER  OF   MONTHS  STOCK  MARKET  INDICATES 
ANNOUNCEMENTS  IN  ADVANCE 


1 

t.:-' 

IMP.-BOOM 

3 
1 

INCREASE  IN   RATE 

INDUSTRIALS 

1 

2 
1 

4 
1 

1 

7 

8 

•   • 

9 

a      • 

10 

Sub-Period .  . 

5 

6 
1 

Total 

1 

^    4 

3 

1 

•   • 

,      , 

■^    1 

5 

7 

10 

3 

6 

6 

2 

1 

•    • 

a      a 

,135 

7 

4 

2 

1 

4 

4 

1 

a     • 

1 

1 

-..  18 

9 

1 
12 

a      • 

14 

1 
6 

1 
12 

1 
11 

•      a 

4 

•     • 

1 

a     • 

1 

•     ■ 

1 

r^   4 

Number 

•      a 

62 

Total  of  % .  . 

19.422.6 

9.7 

19.4 

17.71  6.4 

1.61  1.6 

1.6'   .. 

100.0 

^ 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 

TABLE  I — Continued 


DECLINE- 
DEPRESSION 

INCREASE 

!  IN  ] 

flATE 

INDUSTRIALS 

2 
4 

6 
8 

6 
3 

4 
3 

2 

2 

10 

•  ■ 

14 
15.4 

1 

2 

3  19 

4  10 

8     31 

8.834.1 

1 

3 
5 
3 

12 
13.1 

1 

2 
3 

•  • 

6 

6.6 

•  • 

•  • 

1 

1 

2 

2.2 

•  • 

•  • 

2 

2 

2.2 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

11 
12 

45 
23 

16 
17.6 

Number 

Total  of  %.. 

91 

100.0 

IMP. -BOOM 

INCREASE  IN  RATE 

RAILS 

10 

12 
14 
16 
18 

2 
1 

•  • 

1 

4 
26.7 

1 

•  • 

2 

1 
1 

•  ■ 

•  • 

•  « 

2 

•  • 

•  • 

•  • 

1 

1 

•  • 

2 

13.3 

1 

•  ■ 

•  • 

•  • 

•  • 

•  • 

1 

•  • 

•  • 

•  ■ 

•  • 

•  m 

•  ■ 

•  • 

•  • 

•  ■ 

•  • 

5 

5 
2 
3 

Number 

Total  of  %.. 

3 
20.0 

2 

13.3 

2 

13.3 

1 

6.7 

1 
6.7 

•  • 

•     • 

15 
100.0 

DECLINE- 
DEPRESSION 

INCREASE 

IN  RATE 

RAILS 

11 

•   • 

4 

1 

5 

27.8 

37 
20.0 

•   • 

1 
1 

•  * 

3 

1 

1 
2 

1 

4 

22.2 

49 

26.3 

•  • 

2 

•  • 

2 
11.1 

27 
14.5 

1 

2 

13 

12 

15 
17 

•    • 

1 

5.6 

12 
6.5 

•   • 

•   » 

•  •          •  • 

4 

Number 

2 
11.1 

33 
17.7 

4 
22.2 

20 
10.8 

18 

Total  of  % .  . 

•   • 

•   • 

«   •          •   • 

100.0 

SUMMARY 

4 
2.1 

Total  number 
Total  of  %.  . 

3 
1.5 

1 
0.5  .. 

186 
100.0 

Table  J 

NUMBER  OF   MONTHS  STOCK  MARKET  INDICATES 

ANNOUNCEMENTS  IN  ADVANCE 


IMP.-BOOM 

decrease 

IN  RATE 

INDUSTRIALS 

Sub-Period .  . 

1 

2 

i 

2 

3 
20  0 

3 

i 

1 

•   • 

2 

13  .^ 

4 

1 
1 

2 

4 

76.7 

5 
2 

•   • 

1 

3 
?0  0 

6 

i" 

•    • 

1 

6  7 

7 

8 

9 

■   • 

10 

Total 

2 

•  • 

•  • 

2 

13.3 

1 

3 
5 
7 
9 

a     • 

1 

8 
3 
3 

Total  number 
Total  of  %  .  . 

15 

100  0 

THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET  41 

TABLE  J— Continued 


DECLINE- 
DEPRESSION 

DECREASE   IN  RATE 

INDUSTRIALS 

2 

4 

6 

8 

i 

7 

•   • 

1 
2 

3 

7.3 

•   • 

2 

2 
4.9 

1 
1 

4 

6 
14.6 

•   ■ 

1 

7 

8 
19.5 

•   • 

4 

4 
9.8 

•    • 

1 

4 

5 
12.2 

•   • 

2 

2 

4.9 

•  » 

3 

3 

7.3 

•  • 

•  • 

•  a 

1 

5 
35 

Total  number 
Total  of  % .  . 

8 
19.5 

•     • 

41 

100.0 

IMP.-BOOM 

DECREASE 

IN  RATE 

RAILS 

10 

12 
14 
16 
18 

•  • 

•  • 

1 

•  • 

•  • 

•  • 

2 

■   « 

1 

2 

5 
45.4 

»    • 
•    • 

1 
1 

2 
18.2 

■     a 

1 

a     • 
•     • 

1 

9.1 

•  • 

1 

•  • 

•  • 

•  • 

1 

9.1 

i' 

•  • 

•  « 

1 

9.1 

•  • 

•  • 

•  • 

•  • 

•  « 

•  a 

2 
3 
1 
1 

4 

Total  number 
Total  of  % .  . 

1 
9.1 

•     ■ 

11 

100.0 

DECLINE- 
DEPRESSION 

DECREASE 

IN  RATE 

a     • 
a     • 

•  • 

•  ■ 

RAILS 

11 
13 
15 

17 

1 

1 

1 

2 
40.0 

8 
11.1 

•     a 

•     a 
a     ■ 

•   • 

12 
16.7 

2 

2 
40.0 

8 
11.1 

•   ■ 

6 

8.3 

•  » 

•  • 

4 
1 

Total  number 
Total  of  % .  . 

1 
20.0 

a     • 

9 
12.5 

12 
16.7 

•   . 

5 
100.0 

SUMMARY 

2 
2.8 

3 
4.1 

Total  number 
Total  of  % .  . 

12 
16.7 

72 
100.0 

Analysis  of  results:  Time  of  discounting.— (a)  Com- 
paring the  results  shown  in  Tables  H,  I,  and  J  for  the  three 
classes  of  announcements,  the  stock  market  gives  the  greatest 
amount  of  advance  notice  of  the  coming  of  the  announcement 
in  the  class  of  dividend  decreases.  The  summaries  of  the  three 
tables  mentioned  may  be  analyzed  from  several  points  of  view. 
It  is  seen,  for  example,  that  in  the  class  of  no  change  in  dividend, 
in  88.8  per  cent  of  the  cases  three   months  advance  notice  or 


44  THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 

less  is  given;  in  the  class  of  increase  in  dividend,  in  48.6  per 
cent  of  the  cases  three  months  advance  notice  or  less  is  given; 
in  the  class  of  decrease  in  dividend,  in  40.3  per  cent  of  the  cases 
three  months  advance  notice  or  less  is  given.  Conversely,  for 
the  three  classes,  the  following  percentages  represent  the  pro- 
portion of  the  cases  in  which  over  three  months  advance  notice 
of  the  announcement  is  given:  No  change,  11.2  per  cent;  in- 
crease, 51.4  per  cent;  decrease,  59.7  per  cent.  Or,  stated  in 
another  way,  in  the  class  of  no  change  in  dividend,  evidences  of 
discounting  are  most  numerous  in  the  column  representing  two 
months  advance  notice,  with  the  column  representing  one 
month's  notice  a  close  second.  In  the  class  of  increase  in  divi- 
dend, most  of  the  announcements  are  discounted  in  the  fourth 
month  previous;  in  the  classes  of  decrease  in  dividend,  advance 
notice  is  shown  equally  in  the  first,  the  fourth  and  the  fifth  month 
previous.  The  average  amount  of  notice,  arrived  at  by  weighting 
each  of  the  monthly  classes  by  the  frequencies  (items)  in  that 
class,  for  the  three  classes  is: 

No  change  in  dividend 2.2  months 

Increase  in  dividend 3.3  months 

Decrease  in  dividend 4.1  months 

(It  must  be  kept  in  mind,  however,  that  the  foregoing  state- 
ments refer  only  to  the  advance  notice  given  when  a  dividend  is 
discounted.  It  has  no  reference  to  the  proportionate  number  of 
cases  of  discounting  shown  by  the  three  classes  of  announce- 
ments discussed  in  Section  A,  this  chapter.)  For  example,  the 
class  of  decreases  in  dividend  is  discounted  least  effectively — in 
those  cases  of  decrease  which  are  discounted,  a  greater  amount 
of  advance  notice  is  given  than  for  the  other  two  classes. 

The  outstanding  difference  is  between  the  class  of  no  change 
on  the  one  hand,  and  the  two  classes  comprising  changes  in 
dividend  on  the  other.  The  reasons  accounting  for  this  differ- 
ence can  be  adduced  from  the  characteristics  of  stock-market 
news  and  the  stock  market  itself.  The  news  that  a  dividend 
is  to  be  paid  on  stock  which  has  paid  no  dividends  for  some 
time,  or  that  the  former  rate  will  be  increased,  usually  circulates 
in  the  market  months  before  the  actual  announcement  ma- 


i 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


4S 


terializes.     Rumors   of   the   restoration   of   the   Pennsylvania 
dividend  to  6  per  cent  in  1922  were  heard  approximately  four 
months  or  more  prior  to  the  meeting  of  the  directors  at  which 
the  action  was  taken.    The  information  regarding  the  position 
of  the  company  and  the  ability  of  the  directors  to  increase  the 
dividend  was  from  fairly  reliable  sources.    Any  speculator  knew 
that  the  probabilities  were  all  in  favor  of  restoring  the  dividend 
some  time  in  the  future.    As  to  the  exact  dividend  date  on  which 
the  new  rate  would  be  declared,  there  could  not  be  the  same 
certainty.     But  fundamental  conditions  favored  a  higher  rate 
on  the  stock,  and  it  was  not  strange  that  the  market  anticipated 
the  announcement  several  months  in  advance.    The  speculator 
cannot  know  exactly  when  a  change  will  take  place;  he  can  simply 
indicate  in  stock  prices  his  belief  that  the  change  is  coming 
sometime  in  the  future.    The  earlier  he  acts,  that  is,  the  farther 
ahead  he  discounts,  the  more  profits  he  will  make.    On  the  other 
hand,  it  is  observed  that  certain  widely  held  regular  dividend 
paying  stocks  often  pick  up  their  next  dividend  a  short  time 
after  the  last  dividend.    Discounting  is  more  likely  to  be  exer- 
cised between  dividend  periods  with  regular  dividend  paying 
stocks,  because  there  is  always  present  an  element  of  chance — 
a  possibility  that  the  next  dividend  will  be  reduced.     As  the 
dividend  period  nears  its  close,  and  news  concerning  the  par- 
ticular corporation  becomes  known  (interviews  with  directors, 
quarterly  reports  of  earnings,  etc.),  discounting  becomes  opera- 
tive.   The  director  of  one  corporation  will  have  no  hesitation 
in  predicting  that  the  corporation's  stock  (which  has  not  paid 
dividends  for  some  time)  will  have  the  dividend  restored  some 
time  in  the  future;  the  director  of  another  corporation  whose 
stock  has  been  paying  dividends  will  be  reluctant  to  state  that 
the  next  dividend,  or  that  the  dividends  for  the  next  two  or 
three  periods  will  be  paid.    It  is  not  that  the  non-dividend  payer 
is  in  better  financial  condition  than  the  dividend  payer;  it  is 
because  in  the  case  of  the  non-dividend  payer  the  time  is  ob- 
viously ripe  for  such  action;  in  the  case  of  the  dividend  payer 
it  would  be  foolhardy  to  venture  a  prediction  that  dividends 
will  continue  to  be  paid  indefinitely,  simply  because  the  cor- 
poration has  a  good  standing.    Carried  to  its  logical  conclusion, 


4 


m         THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 

this  would  mean  that  dividends  on  standard  stocks  as  United 
States  Steel,  American  Car  &  Foundry,  etc.,  are  discounted 
years  m  advance.  Dividends  on  dividend  paying  stocks  must 
and  do  depend  on  current  developments,  for  the  very  reason 
that  they  have  come  to  be  considered  as  standard  investment 
stocks— the  conservative  policy  of  their  executive  officers. 

For  example,  take  the  case  of  extra  dividends.     Financial 
reporters  for  newspapers  and  editorials  appearing  in  financial 
news  bulletms,   speculate   frequently,   and   at  length,   on   the 
probabilities  of  the  payment  of  an  extra  cash  dividend  out  of 
the  large  cash  reserves  a  particular  corporation  is  piling  up. 
The  speculator  has  his  mind  made  up  concerning  the  payment 
of  such  a  dividend-and  because  of  the  information  to  which 
he  has  access,  he  knows  this  ahead  of  the  public.    Just  when 
the  directors  of  the  corporation  will  decide  to  make  the  extra 
cash  disbursement  is  a  matter  of  conjecture;  knowing  the  con- 
dition  of  the  corporation,  general  business  conditions,  and  the 
policy  m  the  past  of  this  corporation,  the  forecast  that  some  time 
this  payment  will  be  made  is  a  fairiy  safe  one.    The  conditions 
favoring  such  a  disbursement  are  by  their  nature  of  long  stand- 
mg.     It  takes  a  period  of  months  and  even  years  to  pile  up  a 
large  cash  surplus.     On  the  other  hand,  continuation  of  the 
regular  dividend  depends  largely  on  current  conditions. 

{b)  Continuing  the  analysis  of  the  results  of  the  three  tables 
from  the  standpoint  of  the  kind  of  stock  involved.  Table  K 
which  follows  below,  shows  that  the  greatest  amount  of  advance 
notice  of  a  dividend  announcement  is  given  for  industrials. 
This  may  be  gathered  by  a  glance  at  the  distribution  of  the 
items  in  the  columns  representing  the  number  of  months  advance 
notice  given.  The  half  of  the  table  showing  the  distribution  for 
industrials  presents  the  items  spread  over  each  of  nine  months; 
that  showing  the  distribution  for  railroads,  over  seven  months. 
Three  months  advance  notice  or  less  is  given  for  industrials  in 
66.2  per  cent  of  the  total;  for  railroads,  in  83.3  per  cent  of  the 
total.  Stated  conversely,  this  means  that  industrials  give  over 
three  months  advance  notice  in  ZZ.2>  per  cent  of  the  cases,  while 
railroads  give  over  three  months  notice  in  only  16.7  per  cent 
of  the  cases.  The  average  amount  of  notice  given  by  industrials, 
2.9  months;  by  railroads,  2.4  months. 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET  4T 

Table  K 

COMPARATIVE  TABLE— NUMBER  OF  MONTHS  THE  STOCK 
MARKET  DISCOUNTS  IN  ADVANCE 


INDUSTRIALS 

NATURE   OF 
ANNOUNCEMENT 

1 

2 

3 

4 

19 

43 

10 

72 
17.0 

5 

6 

23 

11 

40 
9.4 

6 

•   • 

10 

5 

15 

'  3.5 

7 

3 

5 

8 
1.8 

8 

3 

2 

5 
1.1 

9 

1 

3 

4 
1.0 

TOTAL 

A.  No  change  in 
dividend 

B.  I  ncrease  in 
dividend 

C.  Decrease     in 
dividend 

64 
28 
10 

73 

28 

6 

53 
14 

4 

215 

153 
56 

Total 

Per  cent 

102 
24.1 

107 
25.3 

71 
16.8 

424 
100.0 

RAILROADS 


NATURE    OF 
ANNOUNCEMENT 

6 

4 

1 

11 
4.6 

A.  No  change   in 
dividend ...... 

B.  Increase    in 
dividend ...... 

C.  Decrease     in 
dividend 

59 
9 
3 

54 
5 
2 

55 
6 
5 

14 

6 

2 

22 
9.2 

2 

3 

5 
2.1 

.  • 

1 

1 

2 
0.8 

188 
33 
17 

Total 

Per  cent 

71 
30.0 

61 
25.6 

66 

27.7 

238 
100.0 

(c)  Table  L  shows  the  extent  to  which  the  nature  of  general 
business  conditions  at  the  time  of  the  announcement  (improve- 
ment-boom or  decline-depression)  affects  the  amount  of  advance 
notice  of  a  dividend  given  by  the  market.  In  periods  of  im- 
provement-boom, three  months  advance  notice  or  less  is  given 
in  79.2  per  cent  of  the  cases— in  periods  of  decline-depression, 
three  months  notice  or  less  is  given  in  61.0  per  cent  of  the  cases. 
This  means  that  in  periods  of  improvement-boom  over  three 
months  notice  is  given  in  20.8  per  cent  of  the  cases,  or  about 
one-fifth  of  the  total.  In  periods  of  decline-depression,  the  same 
notice  is  given  in  39.0  per  cent  of  the  cases,  or  almost  two-fifths 
of  the  total.  The  average  amount  of  notice:  Improvement- 
boom,  2.5  months;  decline-depression,  3.0  months. 


1 


H 


«  THE  DISCOUNTING  OP  DIVIDENDS  BY  THE  STOCK  MARKET 


Table  L 

COMPARATIVE  TABLE— NUMBER  OF  MONTHS  THE  STOCK 
MARKET  DISCOUNTS  IN  ADVANCE 


IMPROVEMENT-BOOM 


NATURE  OF 
ANNOUNCEMENT 

1 

2 

3 

4 

26 

14 

6 

46 
11.3 

5 

10 

13 

4 

6 

•  • 

5 
2 

7 

8 

9 

•  • 

1 

•  • 

TOTAL 

A.  No  change  in 
dividend 

B.  Increase  in 
dividend 

C.  Decrease     in 
dividend 

87 

16 

3 

93 

17 

3 

89 
8 

7 

•  ■ 

2 

1 

3 
0.7 

■  • 

1 

•  • 

305 

77 
26 

Total 

Per  cent 

106 
26.0 

113 

27.7 

104 

25.5 

27 
6.7 

7 
1.7 

1 
0.2 

1 
0.2 

408 
100.0 

DECLINE-DEPRESSION 


NATURE  OF 
ANNOUNCEMENT 

A.  No  change    in 
dividend 

B.  Increase   in 
dividend 

C.  Decrease     in 
dividend 

36 
21 
10 

34 
16 

5 

19 

12 

2 

7 

35 

6 

48 
18.9 

2 

14 

8 

24 
9.4 

7 

6 

13 
5.1 

2 

5 

7 
2.8 

2 

2 

4 
1.6 

•  • 

3 

3 
1.2 

98 
109 

47 

Total 

Per  cent 

67 
26.3 

55 
21.7 

33 
13.0 

254 
100.0 

THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET  49 


I 


Chapter  III 

THE    DISCOUNTING    OF    STOCK    DIVIDENDS    AND 
PRIVILEGED  SUBSCRIPTIONS 

A.  The  Degree  of  Discounting  Efficiency. 

Introductory:  General  method  of  analysis.— In  order  to 
make  an  examination  into  the  capacity  of  the  stock  market  to 
discount  stock  dividends  and  privileged  subscriptions,  or 
*'rights,"  the  same  general  methods  are  followed  as  in  the  case 
of  cash  dividends.  Again,  as  described  in  the  first  part  of  this 
study,  the  announcements  are  taken  from  a  daily  news  bulletin 
service.'  From  this  source  have  been  secured  announcements 
of  140  stock  dividends  and  "rights,"  covering  the  same  period 
of  time  as  the  investigation  of  cash  dividends,  1904-1922. 
Announcements  of  this  type  are  not  nearly  as  numerous  as  those 
of  cash  dividends  and  because  of  their  nature,  appear  only 
sporadically,  principally  during  periods  of  business  prosperity. 
However,  when  they  are  made,  they  are  of  importance  to  in- 
vestor and  speculator,  and  have  been  included  as  part  of  the 
subject  matter  of  this  study. 

The  stocks  represented  by  these  announcements  are  (or 
were)  listed  on  the  following  exchanges:  New  York  Stock 
Exchange,  64;  New  York  Curb  Market,  19;  Boston  Stock 
Exchange,  6;  Chicago  Stock  Exchange,  4;  Baltimore  Stock 
Exchange,  2;  Philadelphia  Stock  Exchange,  2;  Pittsburgh  Stock 

Exchange,  1.* 

The  prices  for  the  stocks  concerned  are  taken  from  the  Wall 
Street  Journal  and  the  Commercial  and  Financial  Chrofiicle. 
As  in  the  former  investigation,  the  price  behavior  of  each  stock 
is  analyzed  separately,  compared  with  the  price  trend  of  similar 
stocks.  The  same  tests  of  discounting  are  used;  and  Method  2, 
the  system  of  checking  the  results  of  Method  1  is  used  to  check 
the  results  shown  by  Method  1  as  explained  previously.     •   p^ 

Summary  of  results:  The  degree  of  discountmg  effi- 
ciency of  the  stock  market. — The  results  of  the  investigation 
are  summarized  in  the  same  manner  as  the  results^  for^cash 
dividends.    Table  M  represents  these  results: 


1 


» Philadelphia  News  Bureau. 

» See  Appendix  C  for  list  of  stocks  in  which  "rights"  or  stock  dividends  were  declared. 


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4 


52  TEE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 

(a)  The  announcements  of  "rights"  and  stock  dividends  are 
effectively  discounted  (within  1  per  cent  accuracy)  in  slightly 
less  than  two-thirds  of  the  total  number  of  cases.  On  the  day 
of  the  announcement  the  results  show  discounting  in  62.9  per 
cent  of  the  cases;  for  both  days  combined,  in  63.6  per  cent  of 
the  cases.3  If  the  results  are  analyzed  with  2  per  cent  accuracy 
as  the  standard,  the  announcements  are  discounted  in  approxi- 
mately three-quarters  of  the  cases— 75.7  per  cent  on  the  day 
of  the  announcement,  73.6  per  cent  for  the  two  days  combined. 

As  in  the  case  of  cash  dividends,  this  investigation  of  the  dis- 
counting efficiency  of  the  stock  market  is  fair  only  when  the 
relative  failure  of  the  market  to  discount  in  the  remaining  one- 
third  of  the  cases  (using  1  per  cent  accuracy  as  the  test)  is  com- 
pared with  the  amounts  of  stock  increase  involved  in  the  an- 
nouncements. While  the  recipient  of  the  stock  dividend  or 
"right"  at  the  moment  possesses  no  greater  share  in  the  property 
of  the  corporation  than  he  did  before  the  distribution,  he  does 
have  a  right  to  future  dividends  on  the  new  stock  if  earned. 
This  right  to  future  earnings  is  in  many  cases  very  valuable, 
and  none  the  less  so  because  it  constitutes  a  right  to  future, 
not  present  earnings.  If  the  announcement  is  that  a  100  per 
cent  stock  dividend  is  to  be  disbursed,  and  if  the  corporation 
has  been  capitalized  conservatively  and  has  been  showing  a 
large  excess  of  earnings  over  dividend  requirements,  the  an- 
nouncement may  mean  that  the  same  cash  dividend  rate  will 
be  maintained  in  the  future  on  double  the  number  of  shares  of 
stock.  The  announcement  potentially  indicates  a  doubling  of 
dividend  income  to  the  stockholder.  If  the  stock  market  fails 
to  discount  such  an  announcement  within  1  per  cent  accuracy, 
such  failure  of  discounting  is  slight  compared  to  the  size  of  the 
increase  of  potential  dividend  income.  Table  N,  which  follows, 
indicates  the  ranges  of  increase  in  stock  ownership  compared 
with  the  figures  showing  the  relative  effectiveness  of  discounting 
by  the  market. 


>  The  results  of  this  part  of  the  investigation  are  approximately  the  same  as  those  of  Mean 
whose  work  is  referred  to  in  Part  I  of  this  study.  Mears'  conclusions  are  that  discounting 
is  shown  in  60.0  per  cent  of  his  total  number  of  cases,  91 .  If  to  the  60  per  cent  are  added  those 
cases  in  which  the  changes  (increases)  in  price  after  the  announcement  were  "unimportant" 
(expression  is  that  of  Mears),  the  percentage  of  cases  showing  discounting  is  71.0.  These 
results  agree  substantially  with  those  given  above. 


the  discounting  of  dividends  by  the  stock  market       u 

Table  N 

COMPARATIVE  TABLE— EFFECTIVENESS  OF  DISCOUNTING 
AND  RANGES  OF  STOCK  OWNERSHIP  INCREASE 


EFFECTIVENESS  OF 
DISCOUNTING 

RANGES   OF   STOCK 
INCREASE 

accuracy  of 

discounting 

(per  cent) 

WITHIN 

D.A. 

B.D. 

NUMBER 

PER  CENT 

NUMBER 

PER  CENT 

LOW 

HIGH 

H  of  1 

75 

2 

11 

18 

27 

7 

53.6 

1.4 

7.9 

12.8 

19.3 

5.0 

79 
2 

8 
14 
22 
15 

56.5 

1.4 

5.7 

10.0 

15.7 

10.7 

1.5 
2.0 

20.0 

2.0 
6.0 
2.5 

900.0 

/ij  "^  •» 

u    Yi 

100.0 

}A     1 

75.0 

1     2 

300.0 

2—5 

400.0 

5  and  over* 

138.0 

Total 

140 

100.0 

140 

100.0 

It  will  be  seen  that,  as  in  the  case  of  cash  dividend  announce- 
ments, the  size  of  the  increase  in  stock  ownership  bears  no 
apparent  relationship  to  the  relative  ability  of  the  market  to 
forecast.  At  the  same  time,  it  is  apparent  that  the  failure  of 
the  market  to  discount  by  5  per  cent  or  more  in  10.7  per  cent 
of  the  cases  is  relatively  slight,  as  the  increases  in  stock  owner- 
ship announced  are  as  high  as  138  per  cent. 

(&)  Table  O  presents  the  results  analyzed  from  the  viewpoint 
of  the  class  of  stock — industrials  or  railroads.  Railroads  make 
considerably  the  better  showing  whether  the  results  for  the  day 
of  the  announcement  or  for  both  days  combined  be  taken. 
There  is  little  doubt  that  this  is  because  railroads  were  con- 
sidered superior  as  investment  securities  during  the  early  part 
of  the  period  covered  by  this  investigation,  added  to  the  fact 
that  railroad  accounting  has  been  standardized,  making  in- 
formation relative  to  railroads  more  accessible  to  the  public 


4  A  separate  analysis  of  each  item  in  this  group  shows  that  in  all  but  three  cases,  the  per- 
centage of  deviation  from  perfect  discounting  is  more  than  compensated  by  the  amount  of 
increase  in  stock  ownership.  These  three  cases  are  all  stocks  with  a  very  narrow  market, 
and  are  inactive. 


4 


U         THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 

than  that  pertaining  to  industrials.  During  the  latter  part  o 
this  period  announcements  of  rights  and  stock  dividends  by 
railroads  have  been  exceedingly  rare.  This  explains  the  rela- 
tive scarcity  of  railroad  items  compared  with  industrials.  The 
recent  plethora  of  stock  dividends  (1920-1922)  has  been  dis- 
bursed almost  exclusively  by  industrial  corporations. 


Table  O 
COMPARATIVE  TABLE—EFFECTIVENESS  OF  DISCOUNTING 

(Within  1  Per  Cent  Accuracy) 


CASES   < 

INDUSTRIALS    (115) 

RAILROADS    (25) 

SHOWING 

DISCOUNTING 

CASES  SHOWING 

DISCOUNTING 

NUM 

BER 

PER  CENT 

NUMBER 

PER  CENT 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

70 

71 

61.7 

62.6 

18 

18 

72.0 

72.0 

(c)  Table  P  presents  the  results  classified  according  to  whether 
the  announcement  occurred  in  improvement-boom  or  decline- 
depression.  As  with  cash  dividends,  the  stock  market  fore- 
casts most  accurately  during  the  period  of  improvement-boom. 
The  differences  shown  between  the  two  periods,  however,  are 
not  great.  The  market  can  be  relied  on  to  forecast  approximately 
two-thirds  of  the  time. 

Table  P 

COMPARATIVE  TABLE— EFFECTIVENESS  OF  DISCOUNTING 

(Within  1  Per  Cent  Accuracy) 


IMPROVEMEJ 

IT-BOOM    (63) 

DECLINE-DEPRESSION    (77) 

NUMBER 

PER   CENT 

NUMBER 

PER  CENT 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

41 

43 

65.1 

68.2 

47 

46 

61.0 

60.0 

THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET  55 

B.  The  Time  of  Discounting. 

Summary  of  results. — (a)  Advance  notice  of  announce- 
ments of  stock  dividends  and  rights  is  given  as  far  as  nine  months 
ahead.  It  will  be  seen  in  Table  Q,  which  follows,  that  such 
ample  notice  is  given  not  only  in  a  few  cases,  but  in  14.5  per 
cent  of  the  total,  or  about  one-seventh  of  the  time.  The  dis- 
tribution of  the  items  is  spread  quite  evenly  over  the  entire  nine 
columns  representing  advance  notice  of  from  one  to  nine  months. 
In  70.4  per  cent  of  the  total,  more  than  three  months  advance 
notice  is  given  by  the  stock  market — in  only  29.6  per  cent  of 
the  total  is  advance  notice  of  three  months  or  less  given.  The 
average  amount  of  notice,  computed  by  weighting  each  of  the 
months  by  the  frequencies  of  that  month,  is  4.9  months,  or 
practically  five  months. 


Table  Q 

NUMBER  OF  MONTHS  STOCK  MARKET  INDICATES 
ANNOUNCEMENTS  IN  ADVANCE 


niP.-BOOM 

INDUSTRIAL 

Sub-Period .... 

1 

2 
2 

■  • 

i' 

3 

6 

17.2 

3 

•  ■ 

1 
1 

•  • 

7 

9 

25.7 

4 
1 

•   • 

1 

1 
4 

7 
20.0 

5 

■  • 
•  • 

2 

2 

5.7 

6 

«  ■ 

1 
1 

2 

4 
11.4 

7 

•  • 

•  • 

1 

•  • 

1 

2 

5.7 

8 

•  • 

•  • 

2 

2 

5.7 

9 

TOTAL 

1 
3 
5 

9 

•  • 

•  • 

1 

•  • 

•  • 

i 
1 

•  ■ 
>  • 

3 
3 
6 

2 
21 

Number 

Per  cent 

1 
2.9 

2 

5.7 

35 
100.0 

IMP.-BOOM 

RAILROADS 

10 
12 
14 
16 

•   * 

1 

•  • 

0 

•  • 

•  • 

0 

•     • 

2 

2 
28.6 

2 

•   • 

2 
28.6 

•    • 

1 

1 
14.3 

•  • 

•  ■ 

0 

•  • 

•  ■ 

0 

•  • 

1 

3 
4 

Number 

Per  cent 

1 
14.3 

1 

14.3 

7 
100.1 

»  I 

4 


56  THE  DISCOUNTING  OP  DIVIDENDS  BY  THE  STOCK  MARKET 


TABLE  Qr-Continued 


DEC.-DEP. 

INDUSTRIALS 

2 

•   • 

1 

•   • 

•   • 

1 

4 

•   • 

1 

•  ■ 

1 

1 

•   • 

3 

6 

6 

•   • 

,   , 

•   • 

1 

1 

1 

3 

8 

3 

3 

1 
3 

2 
2 

3 
5 

4 

4 
6 

1 
1 

2 
2 

5 
8 

25 

Number 

5 

35 

Per  cent 

8.5 

8.5 

5.7 

14.3 

14.3 

17.2 

2.9 

5.7 

22.9 

100.0 

DEC.-DEP. 

1 

•   • 

1 
9.1 

10 
11.4 

RAILROADS 

11 

13 
15 
17 

•  • 

9 
10.3 

i 

1 

9.1 

12 
13.6 

•  • 

•  • 

•  • 

14 
16.0 

2 
2 

4 
36.4 

2 
1 

3 
27.3 

•   • 

4 
4.6 

2 

7 
4 

Number 

Per  cent 

2 
18.1 

11 
100.0 

ALL   AN- 
NOUNCEMENTS 

15 
17.1 

6 
6.8 

Number 

Per  cent 

5 

5.7 

13 
4.51 

88 
100.0 

(h)  Table  R,  classifying  the  results  according  to  industrials 
and  railroads,  indicates  that  the  announcements  by  railroads 
are  forecast  farthest  ahead.  More  than  three  months  advance 
notice  is  given  in  89.0  per  cent  of  the  total— three  months  or 
less  in  only  11.0  per  cent  of  the  total.  Industrials  are  discounted 
by  more  than  three  months  in  65.7  per  cent  of  the  total — three 
months  or  less  in  34.3  per  cent  of  the  total.  The  average  notice, 
calculated  as  explained  above,  is  4.9  months  for  industrials; 
for  railroads,  5.8  months. 

Table  R 

COMPARATIVE  TABLE— NUMBER  OF  MONTHS  STOCK  MARKET 
INDICATES  ANNOUNCEMENTS   IN  ADVANCE 


INDUSTRIALS 

1 

2 

9 

12.9 

3 

11 
15.7 

4 

12 
17.2 

5 

7 
10.0 

6 

10 
14.3 

7 

3 
4.2 

8 

4 

5.7 

9 

TOTAL 

Number 

Per  cent 

4 
5.7 

10 
14.3 

70 

100.0 

THE   DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET  57 


TABLE  R— Continued 


RAILROAD 

B 

Number 

Per  cent 

1 

5.5 

•   • 

12       3       5       3 
5.511.1  16.727.816.7 

•      • 

3 
16.7 

18 
100.0 

4 


(c)  Announcements  are  discounted  farthest  ahead  in  periods 
of  decline-depression.  Table  S  below  shows  the  following  com- 
parative results:  Over  three  months  advance  notice  for  periods 
of  improvement-boom,  59.5  per  cent  of  the  total;  for  periods  of 
decline-depression,  80.5  per  cent  of  the  total.  The  average 
amount  of  notice:  Improvement-boom,  4.4  months;  decline- 
depression,  5.7  months. 

Table  S 

COMPARATIVE  TABLE— NUMBER  OF  MONTHS  STOCK  MARKET 
INDICATES  ANNOUNCEMENTS   IN  ADVANCE 

improvement-boom 


1 

2 

6 
14.3 

3 

9 

21.4 

4 

9 

21.4 

5 

4 
9.5 

6 

5 
11.9 

7 

2 
4.8 

8 

2 

4.8 

9 

total 

Number 

Per  cent 

2 

4.8 

3 
7.1 

42 
100.0 

DECLINE-DEPRESSION 

■ 

Number 

Per  cent 

3 
6.5 

3 
6.5 

3       5       6      10 
6.510.913.121.8 

4 
8.6 

2      10 
4.321.8 

46 
100.0 

St  THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


Chapter  IV 


RESUME 


At  this  point  a  resum^  of  the  conclusions  arrived  at  in  this 
study  is  fitting,  as  the  results  of  the  analysis  of  the  data  are 
scattered  throughout  the  preceding  pages;  and  since  the  data 
for  cash  dividends,  and  that  for  stock  dividends  and  rights 
have  been  analyzed  in  the  same  manner,  it  is  of  interest  to  com- 
pare the  respective  results. 

The  following  summaries  serve  two  purposes:  First,  they 
indicate  similarities  and  differences  between  the  results  for  the 
two  sets  of  data,  and  second,  they  emphasize  the  remarkable 
degree  of  accuracy  of  discounting  shown  by  the  stock  market. 


CASH  DIVIDENDS 

STOCK  DIVIDENDS 
AND   RIGHTS 

EFFECTIVENESS  OF  DISCOUNTING 

(Both  days  combined:  Accuracy,  1%) 

PER  CENT 

PER  CENT 

No  change  in  rate 

82.8 
66.0 
46.0 

67.2 
76.9 

62.0 
64.2 

Increase  in  rate 

63   6 

Ded'ease  in  rate 

All  industrials 

62  6 

All  railroads 

72  0 

All  stocks:   Improvement-boom 

All  stocks:  Decline-depression 

68.2 
60.0 

CASH   DIVIDENDS 

STOCK  DIVIDENDS 
AND   RIGHTS 

EFFECTIVENESS  OF  DISCOUNTING 

(Both  days  combined:  Accuracy,  2%) 

PER  CENT 

PER   CENT 

No  change  in  rate 

92.4 
80.3 

54.5 

79.6 
87.4 

84.8 
74.1 

Increase  in  rate 

73   6 

Decrease  in  rate 

All  industrials 

70  4 

All  railroads 

88  0 

All  stocks:   Improvement-boom 

All  stocks:   Decline-depression 

74.6 

78.0 

THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK  MARKET  59 

In  comparing  the  results  indicated  above,  the  strictness  of  the 
standard  to  determine  accuracy  of  discounting  must  never  be 
lost  sight  of.     Even  a  standard  of  2  per  cent  accuracy  {i.  e., 
considering  as  not  discounted  all  dividend  announcements  of 
stocks  whose  prices  varied  over  2  per  cent  from  the  general 
market)  cannot  be  considered  other  than  a  stringent  test.    Yet 
a  glance  at  the  summary  for  cash  dividends  (2  per  cent  accuracy) 
above  shows  that  for  8  out  of  every  10  announcements  of  indus- 
trials, and  for  almost  9  out  of  every  10  rails,  discounting  is  an 
absolute  fact.     The  results  for  rights  and  stock  dividends  are 
almost  identical;  the  proportions  being  respectively,  7  out  of  10. 
and  nearly  9  out  of  10.    This  does  not  mean  to  say  that  in  the 
case  of  cash  dividends  on  industrials,  for  example,  that  the 
market  fails  to  discount  the  announcement  even  in  the  remaining 
2  cases  out  of  10.    Neither  in  the  case  of  cash  dividends  on  rails, 
does  the  market  fail  in  the  remaining  1  case  out  of  10.    Only 
in  an  absolute  and  arbitrary  sense,  can  it  be  said  that  the  remain- 
ing cases  show  failure  to  discount.    Relatively  (that  is,  judged 
by  the  amounts  of  the  percentage  of  dividend  increase  or  de- 
crease indicated  by  the  announcements),  it  has  been  shown, 
that  with  comparatively  few  exceptions,  every  announcement 
has  been  discounted.    And  from  the  viewpoint  of  investor  and 
speculator,  the  only  fair  test  of  the  stock  market's  ability  to 
•discount  is  the  relative,  not  the  absolute  test. 


CASH  DIVIDENDS 

STOCK  DIVIDENDS 
AND   RIGHTS 

APPROXIMATE  AMOUNT  OF  ADVANCE 
NOTICE 

MONTHS 

MONTHS 

No  chance  in  rate 

2.2 
3.3 
4.1 

2.9 
2.4 

2,5 
3.0 

Inrrpa^e  in  rate 

4.9 

Dprrpase  in  rate    

All  industria.ls 

4.9 

All  ra.ilroa.ds        

5.8 

All  stocks:  Improvement-boom 

All  stocks:  Decline-depression 

4.4 

5.7 

tfi  THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 

The  striking  characteristic  of  the  foregoing  table  is  the  appre- 
ciably greater  amount  of  notice  given  in  the  case  of  announce- 
ments of  rights  and  stock  dividends.  This  is  due  to  their  much 
more  spectacular  nature  and  the  wide  publicity  attendant  on 
their  announcement  and  issue.  But  valuable  as  is  the  advance 
notice  given  in  the  case  of  rights  and  stock  dividends,  such 
announcements  are  comparatively  rare;  and  by  far  the  greater 
service  is  rendered  by  the  stock  in  discounting  announcements 
of  cash  dividends.  It  is  truly  remarkable  that  over  a  period  of 
nineteen  years,  and  including  common  stocks  of  every  variety, 
the  average  amount  of  advance  notice  given  by  the  market 
for  this  class  of  announcements  is  almost  three  months  for  all 
industrials,  and  almost  two  and  a  half  months  for  all  railroads. 

If  the  organized  stock  market  were  capable  of  exercising  no 
other  function  save  that  of  discounting,  its  record  of  performance 
of  this  single  function  would  be  more  than  ample  to  justify  its 
existence  and  to  entitle  it  to  high  rank  as  a  useful  business 
institution. 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET  61 

Appendix  A 

STOCKS  ANNOUNCING  CASH   DIVIDENDS   (Chapter  II) 
(Listed  on  New  York  Stock  Exchange  unless  indicated  otherwise) 


Rails 


Atchison,  T.,  &  S.  Fc 
Atlantic  C.  Line 


Industrials 

A 

Adams  Express 

Advance  Rumely 

Ajax  Rubber 

Allied  Chemical 

Allis  Chalmers 

Amal.  Copper 

Amer.  Ag.  Chem. 

Amer.  Beet  Sugar 

Amer.  Brake  Shoe  &  Foundry 

Amer.  Car  &  Foundry 

Amer.  Cotton  Oil 

American  Express 

Amer.  Gas  &  Elec.  (Curb) 

Amer.  Ice 

Amer.  Int.  Corp. 

Amer.  Light  &  Traction  (Curb) 

Amer.  Linseed 

Amer.  Loco. 

Amer.  Ship. 

Amer.  Sm.  &  Ref. 

Amer.  Snuff 

Amer.  Steel  Foundry 

Amer.  Sugar 

Amer.  Sumatra  Tob. 

Amer.  Tel.  &  Tel. 

Amer.  Tobacco 

Amer.  Woolen 

Amer.  Zinc,  L.,  &  S. 

Anaconda  Copper 

Atlantic  G.  &  W.  I. 


B 

B.  &0. 

Boston  &  Me.  (Bo.) 


B 

Bethlehem  Steel 
Butte  &  Superior 


Canadian  Pacific 
Canada  Southern 
C,  C,  C,  &  St.  Louis 
Central  of  N.  J. 
Chesapeake  &  Ohio 
Chicago,  B.,  &  Q. 
Chic,  M.  &  St.  Paul 
Chic.  &  Northwestern 
Col.  &  So. 


California  Pet. 

Calumet  &  Arizona  (Curb) 

Calumet  &  Hecla  (Bo.) 

Cambria  Steel  (Phila.) 

Central  Leather 

Cerro  de  Pasco  Sugar 

Chandler  Motor 

Chino  Copper 

Cluett  Peabody 

Coca  Cola 

Colorado  Fuel  &  Iron 


I 


62 


THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK  MARKET 


Rails 


D 

D.,  L.  &  W. 
D.  &H. 

£ 
F 


H 

Hocking  Valley 

I 

Illinois  Central 
Interboro 


J 

K 


L.  &N. 

Lehigh  Valley  (Phila.) 


Industrials 

Columbia  Graph. 
Columbus  Gas  &  Elec. 
Cons.  Gas 
Cont.  Can. 
Copper  Range  (Bo.) 
Corn  Prod. 
Crucible  Steel 
Cuba  Cane  Sugar 


Diamond  Match  (Chic.) 
Distillers  Securities 


Endicott  Johnson 

F 

Fisk  Rubber 

Fed.  Mining  &  Sm. 


General  Electric 
General  Motors 
Goodrich  Tire  &  Rubber 
Goodyear  T.  &  R.  (Curb) 
Greene  Cananea  Copper 
Gulf  States  Steel  (Curb) 

H 

Hupp  Motor  (Curb) 


I 

International  Agr.  Corp. 
International  Harvester 
International  Nickel 
Int.  Merc.  Marine  (Curb) 
Int.  Paper 
Int.  Steam  Pump 
Inspiration  Copper 


Jewel  Tea 

K 

Kelly  Springfield 
Kennecott  Copper 
Keystone  Tire  &  Rubber 


Lackawanna  Steel 
Liggett  &  Meyers 
Lorillard,  P. 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


63 


Rails 

Industrials 

M 

Manhattan  S.  Rwy. 
Mich.  Central 
Mo.,  K.,  &  T. 
Mo.  Pac. 

M 

Maxwell  Motors 
Mergenthaler  (Bo.) 
Mex,  Pet. 
Miami  Copper 
Midvale  Steel  &  Ord. 

N 
Nashville,  C,  &  St.  L. 
New  York,  C.,  &  St.  L. 
New  York  Central 
New  York,  N.  H.  &  H. 
Norfolk  &  Southern 
Norfolk  &  Western 
Northern  Pacific 

N  ^ 
National  Biscuit 
Nat.  Cloak  &  Suit 
Nat.  Enameling  &  Stamp. 
Nat.  Lead 

Nevada  Cons.  Copper 
N.  Y.  Air  Brake 
N.  Y.  Dock 

0 

0 
Otis  Elevator 

P 

Pacific  Coast 

Pennsylvania 

Pere  Marquette 

Phila.  R.  T. 

Pittsburgh,  C,  C.  &  St.  L. 

P 

Pac.  Gas  &  Elec.  (Curb) 

Pacific  Oil 

Pan  Amer.  Pet. 

Peoples  Gas 

Pittsburgh  Brewing  (Pitts.) 

Pressed  Steel  Car 

Pullman 

Punta  Alegre  Sugar 

Q 


R 

Reading 
Rock  Island 


Soo  Line 
Southern  Pac. 
Southern  Rwy. 


i 


Q 

Quaker  Oats  (Chic.) 

R 

Ray  Cons.  Copper 
Railway  St.  Spring 
Republic  Iron  &  Steel 


Savage  Arms 

Saxon  Motors 

Sears  Roebuck  (Chicago) 

Sloss  Sheffield 

Southern  Porto  Rico  Sugar 

Standard  Oil  of  Ind.  (Curb) 

Standard  Oil  of  N.  Y.  (Curb) 

Stewart  Warner 

Stromberg  Cork 

Studebaker 

Stutz  Motor 

Superior  Steel 

Swift  &  Co.  (Chic.) 


Tenn.  Coal  &  I. 


I 


I 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


RaUs 

U 

Union  Pac. 


Industrials 

U 

Underwood  T.  W. 

Union  Bag  &  Paper 

United  Cigar  Stores 

United  Drug 

United  Fruit  (Bo.) 

United  Gas  Imp.  (Phila.) 

United  Pr.  Sh.  (Curb) 

United  Retail  Stores 

United  Shoe  Mach.  (Bo.) 

United  Verde  C.  (Bo.) 

U.  S.  Cast  Iron  Pipe  &  Fdy. 

U.  S.  Food  Products 

U.  S.  Ind.  Alcohol 

U.  S.  Realty  &  Impt. 

U.  S.  Rubber 

U.  S.  Smelt.,  R.,  &  M. 

U.  S.  Steel 

Utah  Cons.  Copper  (Bo.) 


W 


Wabash 


Va.  Car.  Chem. 
Vanadium  Steel 
Vivadou 

W 

Westinghouse  Elec. 
Western  Union 
White  Motor  (Curb) 
Wickwire  Spencer  Steel 
Willys  Overland 
Woolworth 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET         65 

Appendix  B 
CASH   DIVIDENDS 


Original  items:    Classified  according  to  degree  of  discounting  effectiveness. 


NO  CHANGE 


IMP. -BOOM 


IND. 


1.  January  1,  1904  to  January  19,  1906 


Percentage  of 

WITHIN 

Accuracy 

MOFl 

M-K 

Vt- 

-1 

B.D. 

i 
i 

1- 

D.A. 

"i 

i 
"i 

i 

-2 

2—5 

5   AND 
OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D.    D.A. 

B.D. 

1 

2 
3 
4 

5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 

•  • 

1 
1 

«    • 

•  • 

1 

•  ■ 

1 
1 

•  • 

1 
1 
1 

1 
1 
1 

1 

•  • 

1 

•  ■ 

1 
1 
1 
1 

•  • 

1 

•  • 

1 

•  • 

1 
1 

•  • 

1 

1 

•  • 

•  • 

i 

i 

*i 
i 

"i 

*i 
"i 

•  • 

i 

i 

i 

1 

i 

TEE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK  MARKET 


THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK  MARKET 


67 


PERCENTAGE 

OF  ACCURACY 

WITHIN 

5   AND 

Hi 

3Fl 

H-y2    ^-1 

.D. 

1—: 

2          2- 

-5 

OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D.    D.A.    B 

D.A.    B.D.    D.A. 

B.D. 

D.A. 

B.D. 

35 

■    • 

•    • 

1 

1 

36 

1 

1 

37 

•    • 

•    • 

1 

1 

38 

39 

40 

,    ^ 

•    • 

1 

41 

42 

43 

44 

,    , 

45 

46 

,    ^ 

47 

48 

49 

50 

51 

52 

53 

54 

55 

•    • 

1 

56 

57 

1 

1 

37 

43 

1 

2        ) 

r        3 

7 

5       5 

4 

0 

0 

3. 

Noveml 

)er  16,  1907  to  November  19,  1909 

146 

1 

1 

..    1 

147 

1 

1 

148 

,  , 

i 

1 

149 

•   ■ 

1 

1 

150 

1 

i 

151 

•  • 

1 

1 

152 

1 

i 

153 

•  . 

I 

1 

154 

•  « 

1 

1 

155 

,   , 

1 

156 

1 

i 

157 

1 

1 

158 

1 

1 

159 

«     m 

,  , 

1 

1 

160 

•     • 

•  • 

1 

1 

161 

■     • 

•  • 

1        1 

162 

•     • 

•  • 

•  «             •   • 

i 

•    • 

1 

PERCENTAGE  OF  ACCURACY 
WITHIN 


ITEM 


163 
164 

165 

166 

167 

168 

169 

170 

171 

172 

173 

174 

175 

176 

177 

178 

179 

180 

181 

182 

183 

184 

185 

186 

187 

188 

189 

190 

191 

192 

193 

194 

195 

196 

197 

198 

199 

200 

201 

202 

203 

204 

205 

206 

207 

208 

209 

210 

211 

212 


JiOFl 


D.A. 


1 
1 
1 
1 


45 


B.D. 


1 
1 
1 
1 


1 
1 

1 
1 


1 
1 
1 
1 
1 


1 
1 
1 
1 

I    • 

1 
1 


1 

•  • 

1 

•  • 

1 
1 
1 
1 
1 
1 
1 

•  • 

39 


}4-y2 


D.A. 


1 
3 


B.D. 


^-1 


D.A. 


B.D. 


1—2 


D.A, 


B.D. 


2—5 


I      5  AND 


OVER 


D.A. 


B.D. 


D.A. 


B.D. 


4       5 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


» 


5.  December  24,  1914  to  November  21,  1916 

PERCENTAGE  OF  ACCURACY 
WITHIN 


MOFl 

H-H 

'A-l 

1  OF  2 

1 

2—5 

5  AND 
OVER 

ITEM 

D.A, 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

321 

322 
323 

324 

325 

326 

327 

328 

329 

330 

331 

332 

333 

334 

335 

336 

337 

338 

339 

340 

341 

342 

343 

1 
1 

1 

•  • 

•  • 

•  • 

•  • 

1 
1 

•  • 

•  • 

1 
1 

1 
1 
1 
1 
1 

i 
i 

■  • 

1 
1 

•  • 

"i 

i 

1 
1 

i 

i 

i 

1 
1 

■  • 

1 

1 
1 

i 

1 

2 

•  ■ 

1 
1 
1 
1 

i 

■  « 

i 

1 
1 

i 

"i 

' 

14 

14 

1 

2 

5 

4 

1 

2 

PERCENTAGE  OF  ACCURACY 

WITHIN 

5  AND 

MOFl 

H- 

■'A 

H-1 

1—2 

2—5 

OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A.  B.D.  D.A. 

B.D. 

417 

•  • 

•  ■ 

•  » 

1 

1 

418 

•  • 

•  • 

1 

i 

419 

420 

422 

•  • 

423 

•  • 

1 

424 

501 

•  • 

502 

.  , 

503 

504 

•  • 

•  ■ 

i 

i 

505 

•  • 

1 

506 

507 

508 

509 

510 

511 

512 

513 

514 

4 

515 

•  • 

X 

1 

516 

•  • 

i 

i 

517 

518 

27 

27 

ll 

3 

5 

3 

7 

6 

J 

2 

7.  December  19,  1917  to  November  3,  1919 


401 
402 
403 
404 
405 
406 
407 
408 
409 
410 
411 
412 
413 
414 
415 
416 

■  • 

1 

•  • 

•  • 

i 

i 

«  • 

•  • 

•  • 

1 

•  • 

•  • 

1 
1 
1 
1 

1 

«  • 

1 

•  • 

i 

•  • 

i 

•  • 

•  • 

•  • 

1 
1 

i 

1 
i 

1 
i 

*i 

i 

601 
602 
603 
604 
606 
607 
611 
613 
614 
616 
617 
618 
619 


NO  CHANGE         IMP.-BOOM 

10.  January  1,  1904  to  January  22,  1906 


RAILS 


1 

1 

1 

1 

• 

1 

•  • 

1 

• 

1 

1 

• 

1 

1 

1 

• 

1 

•  • 

1 

i 

1 

1 

i 

"i 

i 

I>^ 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK  MARKET  7t 


PERCENTAGE  OF  ACCURACY 
WITHIN 


• 

H 

OF  1 

Vs-'A 

'A-l 

1—2 

2—5 

5  AND 
OVER 

ITEM 

D.A. 

B.D. 

D.A 

.  B.D 

D.A 

.  B.D 

D.A 

B.D 

i 

1 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

«  • 

•  • 

•  • 

•  • 

•  • 

•  • 

i 

D.A 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 
■  • 

i 

•  • 

•  • 

•  « 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 
■  • 

•  • 

•  • 

•  • 

•  • 
«  • 

•  • 

•  • 
«  • 

•  a 

.  B.D 

.  D.A 

.  B.D. 

625 

628 

629 

630 

631 

632 

633 

634 

635 

637 

638 

639 

640 

641 

642 

643 

644 

645 

646 

647 

648 

649 

650 

651 

652 

653 

654 

655 

656 

657 

658 

659 

660 

661 

662 

663 

664 

665 

666 

667 

668 

669 

670 

671 

672 

673 

674 

1 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

1 

•  • 

•  • 

•  • 

•  • 

•  • 

1 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

1 

•  * 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

1 

•  • 

•  • 

•  • 

•  • 

•  • 

1 

•  • 

•  • 

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•  • 

•  • 

•  • 

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•  • 

•  • 

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•  • 

•  • 

•  • 

m    • 

•  • 

•  • 

•  • 

1 

•  • 

•  • 

•  • 

•  • 

1 

•  • 

•  • 

•  • 

1 

•  • 

1 

•  • 

•  • 

•   4 

i 

•  • 

•  « 

■  • 

•  • 

•  • 

•  • 

■  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

i 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

■  • 

■  • 

■  ■ 

•  • 

•  • 

"i 

•  • 

i 

•  • 

•  • 

•  • 

•  • 

•  • 

1 

•  • 
■  • 

•  • 

•  • 

•  « 

•  • 

•  • 

•  • 

•  • 

•  • 

:: 

•  • 
t  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 
■  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 
■  • 

•  • 

•  • 

•  • 

•  • 

•  ■ 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  ■ 
■  « 

•  • 

•  • 

•  • 

•  • 

•  • 

•  ■ 

•  • 

•  • 

•  • 

•  • 

•  « 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  ■ 

•  • 
■  • 

•  • 

•  • 
t  • 

•  • 

PERCENTAGE  OF  ACCURACY 
WITHIN 


MOFl 

H-A 

A-l 

1—2 

2- 

-5 

5  AND 
OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

D.A, 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

675 
676 
677 
678 
679 
680 
681 
682 
683 
684 
685 
686 
687 
688 
689 
690 
691 
692 
693 
694 
695 

•  • 

•  • 

•    4 

*  a 

i 

1 

i 

i 
i 

i 

1 

1 

i 

57 

57 

6 

6 

11 

8 

5 

4 

2 

6 

12. 

November  21,  1907  to  December  30, 

1909 

762 
763 
764 
765 
766 
767 
768 
769 
770 
771 
772 
773 
774 
775 
776 
777 
778 
779 
780 
781 
782 
783 

1 

•  ■ 

1 

•  • 

•  • 

1 
1 

•  • 
«  ■ 

•  • 

•  • 

1 

■  • 

1 

i 

i 

i 
1 
1 

•  • 

1 
1 

1 
1 
1 
1 

•  • 

*i 

i 

i 

i 

"i 
i 

*i 
1 

i 

i 
1 

•  • 

•  • 

i 
1 

•  • 

1 

i 

i 
i 

. . 

13 


THE  DISCOUNTING  OP  DIVIDENDS  BY  THE  STOCK  MAEKRl 


PERCENTAGE  OF  ACCURACY 
WITHIN 

H 

OF  1 

H~y2 

y^\ 

1—2 

2—5 

5   AND 
OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

784 

785 

786 

787 

788 

789 

790 

791 

792 

793 

794 

795 

796 

797 

798 

799 

800 

801 

802 

803 

804 

805 

806 

807 

808 

809 

810 

811 

812 

813 

814 

815 

816 

817 

818 

819 

820 

821 

822 

823 

824 

825 

826 

827 

828 

829 

830 

1 

•  * 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 
■    • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•    « 

1 

i 

«    • 

•  • 

•  a 

•  • 

i 

•  ■ 

•  • 

•  • 

"i 

•  • 

«  • 

•  • 

i 

•  • 

1 

1 

•  • 

•  • 

•  • 

•  • 
■     ■ 
«     • 

1 

i 

•  • 

i 

•  • 

•  a 

•  • 

•  • 

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i 

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1 

a      a 

i 

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a     a 

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a     • 

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a     a 

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•  • 

•  • 

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•  • 

i 

a     • 

i 

a      a 
a     « 

i 

a     a 
a      • 

i 

a    • 

a      a 

"i 

a     a 

a     a 
a     • 

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•  a 

•  a 

•  a 

•  a 

•  a 

•  a 

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a      a 

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•     a 

i 

a      a 
a      • 

•  a 

•  a 

•  • 
a     a 

•  ■ 

•  • 
a     a 

a     a 
a      a 

a     a 

«    • 

a      a 
a     • 

•      a 
a      a 

a     a 
a      a 

a     • 
a     a 

•  a 

•  • 
a     a 
a     • 

a     • 

a     a 
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•     a 

a     • 

•  • 

•  • 

•  t 

a      • 

•  • 

•  • 

•  • 
t     • 
a      a 

•  a 
a     « 
a     a 
a     B 

•  t 

•  • 
a     • 

•  • 

a     a 

•  • 

•  • 
a     • 
a     a 

•  • 

a     a 

•  a 

•  » 

•  a 

•  • 

•  • 

•  • 

•  a 

•  • 

44 

48         5 

3      12 

9        6 

6 

2 

3 

THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET  73 

14.  December  24,  1914  to  November  6,  1916 

PERCENTAGE  OF  ACCURACY 
WITHIN 


901 

902 

903 

904 

905 

906 

907 

908 

909 

910 

911 

912 

913 

914 

917 

918 

919 

741 

742 

743 

745 

746 


)F  1 

5  ANE 

> 

He 

H-'A 

K-1 

[          1—2 

2- 

A. 

-5 

OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

D.A.    B.D.    D.A. 

B.D.    D, 

B.D. 

D.A. 

B.D. 

712 

1 

1 

713 

a     • 

i 

i 

714 

a      < 

1 

i 

715 

1 

,     , 

i 

716 

1 

1 

717 

1 

i 

718 

1 

1 

719 

1 

a     a 

i 

720 

,      , 

•     ■ 

i 

i 

721 

,      , 

1 

1 

722 

1 

,     . 

,  , 

i 

723 

,      , 

1 

1 

724 

1 

1 

725 

1 

1 

726 

1 

1 

727 

1 

1 

732 

1 

1 

•1- 

10 

11 

4 

1 

2 

1      1 

4 

0_ 

ol 

_ 

1 
1 
1 
1 

i 
1 
1 


1 
1 
1 
1 


16.  December  19,  1917  to  May  27,  1919 

1 
1 
1 
1 


1 
1 
1 
1 


1 
1 


1 
1 


1 
1 
1 

15 


I! 


14 


0 


0 


It- 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET  IS 


NO  CHANGE  DEC.-^DEP. 

2.  January  20,  1906  to  January  15,  1907 

PERCENTAGE  OF  ACCURACY 
WITHIN 


IND. 


M  OF  1         lyi- 

1 

-y2    y2-i      1- 

-2     2-5 

5  AND 
OVER 

ITEM 

D.A. 

B.D.   D.A 

.  B.A.  D.A.  B.D.  D.A 

.  B.A.  D.A.  B.D.  D 

A.  B.D. 

71 

1 

1 

72 

•  • 

•  . 

• 

73 

•  •          ,  a 

1 

1 

. 

74 

1 

■   •            .   .            s   , 

1 

■  • 

75 

1 

•  • 

•       •  • 

76 

1 

■  • 

•  • 

■       ■  > 

77 
78 

i 

1  ::        1 

• 

79 

1 

•  • 

•       •  ■ 

80 

1 



•  • 

81 

•  •   ..    1 

•  •   ..    1 

1    1  .. 

•  ..    1 

•  ■ 

82 

,  , 

83 

•  • 

•  • 

84 

•  • 

,  , 

85 



•  • 

86 



•  • 

,  , 

87 

' '   '  •   •  •   •  > 



■  • 

88 





•  • 

89 

. . 

,  , 

90 



*  '    *  •    •  •    •  . 

,  , 

91 



'  '    *  •    •  •    .  • 

92 

•  •  ..   i 

•  11.. 

'  *    •  •    •  •    >  > 

,  , 

93 



94 
95 

i 

•  •       •  ■ 

96 

?   1 

•  •   i  ..  .'." 



97 



98 

1 

■  • 

99 





100 

1 

•  • 

101 

1 

■  • 

'■'■   '.'.   ::  ;; 

102 

1 

•  •  •  • 

103 
104 

1 

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■  •   •  • 

105 
106 

•  • 

. . 

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i  •.  ..  '.'. 

•  • 

107 



•  • 

108 

1 

'  ' 

•  • 

109 

•  • 

110 
111 

•  • 

•  •  ..  "i  ."." 

•  • 

112 

"    •  •    •  • 

'*    "•    ••    •■ 

•  • 

113 

1   1 

• 

•  I::  :;|;. 

'  '    •  •    •  • 



•  • 
.  - 

PERCENTAGE  OF  ACCURACY 
WITHIN 


1 

5  AND 

MOFl 

H-V2 

K- 

-1 

B.D. 

1- 
D.A. 

-2 

2- 

-5 

OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

114 

.. 

,  , 

,  , 

.  • 

.  • 

115 

.  . 

.  • 

•  . 

•  • 

•  • 

■  • 

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116 

.  . 

■  • 

•  • 

•  • 

•  • 

•  • 

117 

.  . 

.  . 

.  . 

•  • 

•  ■ 

•  • 

•  ■ 

118 

.  . 

■  • 

•  • 

•  • 

•  • 

•  • 

.  . 

119 

.  . 

.  • 

•  • 

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i 

•  • 

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120 

,  . 

•  • 

.  . 

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•  • 

•  • 

•  • 

•  • 

121 

.  . 

.  . 

•  • 

■  • 

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•  • 

•  • 

122 

.  ■ 

■  ■ 

•  • 

•  • 

•  • 

•  ■ 

•  ■ 

•  * 

123 

.  , 

.  . 

1 

.  • 

•  • 

•  • 

•  • 

•  • 

124 

•  ■ 

.  . 

.  . 

1 

1 

•  • 

•  • 

•  • 

•  • 

125 

•  • 

.  • 

•  . 

•  • 

1 

•  • 

•  • 

•  • 

126 

.  . 

■  • 

•  • 

•  ■ 

•  • 

i 

.  .    •  ■ 

127 

•  • 

.  . 

.  . 

•  • 

•  • 

•  • 

128 

.  . 

•  • 

.  • 

•  • 

•  • 

•  • 

•  • 

•  • 

129 

.  . 

.  . 

.  • 

•  • 

. . 

•  ■ 

•  ■ 

•  • 

130 

•  • 

•  ■ 

.  . 

.  . 

1 

•  • 

1 

•  • 

•  • 

•  * 

131 

.  . 

.  . 

.  . 

.  • 

•  • 

•  • 

•  • 

•  • 

132 

,  , 

.  . 

.  . 

.  . 

1 

1 

•  • 

■  • 

•  • 

133 

.  . 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

134 

.  . 

.  . 

•  • 

•  • 

■  • 

•  • 

•  • 

•  • 

135 

•  • 

.  . 

.  ■ 

•  • 

•  • 

1 

•  • 

■  • 

•  • 

.  ■ 

136 

.  • 

•  • 

.  • 

•  • 

•  • 

•  • 

•  ■ 

■  • 

137 

.  . 

.  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

138 

.  . 

.  • 

•  • 

1 

•  • 

•  • 

•  • 

•  • 

139 

.  . 

.  • 

•  • 

•  • 

•  • 

•  • 

"i 
1 

•  • 

■  • 

140 

.  . 

■  ■ 

•  • 

•  ■ 

4 

■  • 

•  • 

141 

.  ■ 

.  ■ 

.  • 

■  • 

•  • 

1 

•  • 

•  ' 

142 

143 

•  • 

•  ■ 

:; 

'  ' 

i 

■  • 

i 

.  • 

•  • 

144 

.  . 

•  . 

•  • 

•  • 

•  • 

•  • 

•  • 

145 

11 

3 

6 

• " 

•  • 

•  ' 

II 

59 

51 

2 

2 

9 

2 

4  1  0 

1 

6.  November  22,  1916  to  December  18,  1917 

337 

1 

1 

•  •     •  • 

■  •     ■  > 

338 

1 

1 

•  •     •  • 

4 

"i 

339 

•  • 

•  ■ 

•  * 

1 

340 

1 

1 

•  • 

•  • 

•  • 

341 

a   , 

1 

1 

•  • 

m     • 

342 

1 

1 

• . 

•   • 

343 

•  « 

•  • 

i 
1 

1   ..  1  .. 
1 

•  ■ 

•   • 

1  r 

5 

0 

2   0  1  0 

0 

1 

1 

1  0 

( 

L. 

THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 
8.  November  4,  1919  to  August  24,  1921 

PERCENTAGE  OF  ACCURACY 
WITHIN 


H 

OF  1 

H 

-'A 

M 

—  1 

1—2 

2- 

-5 

5  AND 
OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

421 
425 

1 

•  • 

1 

0 

0 

i 

■  ■ 

' 

•  * 

i 

•  • 

1     1  1 

1 

0 

0 

0 

0 

1 

0 

0 

NO  CHANGE  DEC.-DEP.  rails 

11.  January  23,  1906  to  November  20,  1907 


1033 
1034 

i 

1 

1   ..   . 

•  • 

1035 

•  •     >  ■ 

-f 



•  •     •  • 

1036 
1037 
1038 

■ 

i 

1 

1 

i  ..  .' 

'     •  •     •  ■ 

1039 

1 

•  •    •  • 



i  ..  .. 

1040 

'.'.     "i 



•  ■ 

1041 



1042 

•  ■ 

1   1 

1043 

1 

1   1  . . 

1044 

1 



•  •    •  • 

1045 

1 

i 



•  '    •  • 

1046 

1 



'  *    •  « 

1047 

1 

. . 

1 

•  •        mm 

1048 

1 

■ 



•  • 

1049 

•  •  •  • 

•  • 

1050 

i 

. 

1 

•  *        •  • 

1051 

1 

.  . 

•  •        •  • 

1052 

1 

*  *    •  • 

•  •        •  • 

1053 

•  • 

i 



'  '        •  • 

1054 

1 



•  .        ,  , 

1055 

1 

•    >  • 

•  • 

•  •        •  • 

1056 

•  • 

'i 

"  * 



•  •        •  • 

1057 

a  ■ 

J 

i 



■  •        mm 

1058 

1 

•  • 

■  •        ■  a 

1059 

1 

•    •  • 



■  •        t  • 

1060 

1 

•    •  • 



•  •        ■  • 

1061 

1 

J- 

3   1 

•  • 

•  ■ 

•  . 

1 

16 

— 

7  1 

2   2 

5   1  1  2 

THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 

15.  November  7,  1916  to  December  18,  1917 

PERCENTAGE  OF  ACCURACY 
WITHIN 


77 


1 

5  AND 

HoFl 

H-y2 

Vz-^ 

1—2 

2—5 

OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

728 

1 

1 

.. 

,  , 

,  , 

.  . 

.  ■ 

.  . 

•  • 

•  • 

729 

1 

1 

•  • 

.  . 

•  • 

•  • 

•  • 

•  • 

■  • 

•  • 

730 

1 

1 

■  • 

•  • 

•  • 

■  • 

•  ■ 

•  • 

■  • 

731 

1 

1 

■  • 

•  • 

•  • 

•  • 

•  • 

4 

4 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

19.  May  28,  1919  to  June 

;20, 

1921 

920 

1 

•  • 

■  > 

, , 

. . 

.  ■ 

1 

•  • 

747 

1 

1 

•  • 

. . 

•  • 

•  • 

748 

,  , 

•  • 

. . 

1 

« 

1 

749 

1 

•  • 

•  • 

. . 

1 

.  .1 

t 

•  • 

750 

«  • 

,  , 

1 

1 

. . 

'  '  \          *   ' 

751 

1 

1 

1   0 

•  • 

4 

1 

1 

2 

0 

1 

1 

1 

0   0 

INCREASES  IMP.-BOOM  IND. 

1.  January  1,  1904  to  January  19,  1906 


536 

1 

,  , 

1 

, . 

•  . 

. . 

. . 

•  • 

.  • 

•  • 

■  m 

1101 

•  • 

,  . 

.  . 

1 

. . 

■  • 

1 

m     • 

1102 

1 

1 

•  • 

•  ■ 

■  • 

. . 

•  • 

•  • 

■  ■ 

•  « 

545 

1 

•  • 

0 

1 

•  • 

•  • 

0 

0 

•  ■ 

3 

1 

2 

0 

1 

1 

0 

0 

0 

3.  November  16,  1907  to  November  19, 

1909 

529 

547 

1 

1     1 

0 

0 

0 

•  • 

0 

0 

•  • 

0 

•  ■ 

0 

1 

1 

■  • 

0 

•  • 

•  • 

2     1 

0 

78 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


ITEM 
1147 

1148 

1149 

1150 

1151 

1152 

1242 

1243 

1244 

1245 

1246 

1247 

1248 

1249 

1250 

1251 

125.2 

1253 

1254 

1255 

1256 

1337 

1332 

1323 

1325 

1326 

1317 

1318 

1319 

1320 

1314 

1338 

1363 

1364 

1365 

1370 

1371 

1372 

1373 

1374 

1375 

1376 
1377 
1378 
1379 


5.  December  24,  1914  to  November  21,  1916 

PERCENT  OF  ACCURACY 
WITHIN 


>iOF  1 


D.A. 


1 
1 
1 
1 
1 


1 
1 

i 
1 
1 


1 
1 


1 
1 


1 

1 

i 
1 
1 


1 
1 
1 


1 
1 


B.D. 


1 
1 
1 
1 


1 
1 

i 
1 
1 

i 
1 


1 
1 
1 
1 


1 
1 
1 
1 


1 

1 
1 


M-J^ 


D.A 


B.D. 


^—1 


D.A 


B.D. 


1—2 


D.A. 


B.D, 


2—5 


D.A 


1 
1 


1 
1 


B.D 


1  1 


<1 


1 

i 


1 
1 


..  I    1 


5    AND 
OVER 


D.A. 


B.D. 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


79 


ITEM 


1380 

1381 

1382 

1383 

1384 

1385 

1386 

1387 

1388 

1389 

1390 

1391 

1392 

1393 

1394 

1395 

1396 


1362 

1342 

1343 

1344 

1345 

1346 

1347 

1348 

1349 

1350 

1351 

1327 

1328 

1322 

1324 

1321 

1312 

1313 

1315 

1316 

1307 

1308 

1309 

1310 


PERCENT  OF  ACCURACY 
WITHIN 


HOFl 




D.A. 


1 
1 

1 
1 
1 
1 


1 
1 
1 

i 
1 


B.D. 


H-^ 


D.A. 


1 
1 


B.D 


3^-1 


D.A. 


37 


1 
1 
1 


32 


B.D. 


1—2 


2—5 


D.A. 


B.D, 


D.A. 


1 
1 


B.D. 


5   AND 
OVER 


D.A. 


11 


13 


7.  December  19,  1917  to  November  3,  1919 


1 
1 

I   ■ 

1 
1 
1 


1 
1 
1 


1 
1 


B.D. 


1 

•  •         ■  • 

1 

"i 

"  " 

•  • 

i 

. . 

•  • 

■  • 

•  • 

*  • 

•  • 

1 

•  • 

■  ■ 

1 

•  • 

a     • 

,  , 

,  . 

1 

•  • 

1 

i 

:: 

■     ■ 

" 

1 

1 

1 

.  . 

•  • 

•     • 

1 

•  • 

.  • 

•  • 

•     • 

1 

.  . 

•  . 

• ' 

"     * 

1 

;■.  ri 

*i 

:; 

•     • 

•  • 

.. 

. . 

1 

i 

. . 

.  • 

•     ■ 

•  • 

•     • 

i 

1 

•  • 

•     • 

•  • 

•    • 

•  • 

•  • 

1 

•  • 

i 

•  • 

1 

•     • 

1 

.  . 

•    • 

■  • 

•  • 

•  ' 

•  • 

•     • 

1 

•  • 

•    • 

■  • 

•  ' 

■ ' 

•     • 

1 

•  • 

■    a 

*    • 

•• 

•  • 

i 

"i 

•  • 

•  • 

•     • 

M  THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


PERCENT  OF  ACCURACY 
WITHIN 


^OF  1 

H- 

-'A 

'A- 

-1 

1—2 

2- 

-5 

5  AND 
OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

1311 

1301 
1302 
1303 
1304 
1305 
1306 

1 

1 
1 

»  • 

1 

•  • 

1 

1 
1 

•  • 

i 
i 

i 

•  • 

•  • 

•  • 

i 

•  • 

•  • 

•  • 

•  « 

"i 

i 

•  • 

i 

18 

12 

1 

1 

1 

5   4   4 

6 

7 

1   2 

THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK  MARKET 
14.  December  24,  1914  to  November  6,  1916 

PERCENT  OF  ACCURACY 
WITHIN 


81 


KOFl 

Vs-'A 

H-1 

1—2 

2—5 

5  AND 
OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

1423 
1424 
1401 
1402 

1 
1 

•  ■ 

1 

i 
"i 

•  • 

"i 

•  • 

•  • 

•  ■ 

1 

•  • 

■  ■ 

1 

3 

2 

1 

0 

0 

ll  0 

0 

0 

1 

0 

0 

9. 

August  25 

,  192] 

I— 

1146 
1135 

i 

1 
1 

■  • 

1 

1136 

1 

1 

•  • 

•  • 

1339 
1340 

"i 

i 

;• 

i 

i 

2 

2 

0 

0 

0 

1 

3 

1 

0   0 

0 

1 

INCREASES  IMP.-BOOM 

10.  January  1,  1904  to  January  22,  1906 


RAILS 


1403 
1404 

. . 

1 

1501 

•  •    -  • 

1 

1502 

•  ' 

1503 

•  ' 

527 

1 

1255 

1 

1256 

1 

.  . 

•  •    .  . 

6 

8 

1 

0   0 

0 

1 

0   0   0   0 

0 

12. 

November  21,  1907  to  December  30,  1909 

1509 
1536 

1 

•  • 

1 

i 

. . 

.  . 

•  •        ■  • 

1537 

1 

•  •    ■  . 

•  . 

.  . 

530 

1 

'  ■ 

•  ■ 

1405 

i 

•  • 

529 

•  • 

0 

.  . 

•  * 

3 

5 

1 

1 

1 

1 

0 

0 

0 

0 

0 

18.  J 

une  21,  1921— 

1414 

1 

1 

i 

i 

1415 

B   , 

i 

1416 

1 

1 

i 

2000 

•   • 

•  ■ 

2001 

1 

1 

0 

•  • 

•  ' 

■  " 

3 

0 

0 

0 

0 

1 

2 

2 

2 

0 

0 

INCREASES  DEC.-DEP.  IND. 

2.  January  20,  1906  to  November  15,  1907 


1103 

,  , 

1 

•  ■ 

1104 

. . 

1 

i 

•  • 

1105 

i 

. . 

1 

•  • 

1106 

1 

•  • 

1107 

1 

1 

•  ■ 

1108 

■  • 

1 

'  ■ 

1109 

1 

1 

■  • 

1110 

1 

•  • 

i 

i 

nil 

.  • 

4 

•  • 

•  ■ 

1112 

i 

. . 

1 

•  • 

i 

537 

. . 

•  • 

538 

i 

1 

•  • 

i 

546 

1 

. . 

M                      4 

•  • 

521 

•  • 

1    1 

•  • 

522 

1 

i 
1 

1 

1   4 

5 

2 

I 

6 

6 

1 

1 

1 

V>  sL 


THE  DISCOUNTING  OP  DIVIDENDS  BY  THE  STOCK  MARKET 


4.  November  20,  1909  to  December  23,  1914 


PERCENT  OF  ACCURACY 

WITHIN 

^OFl 

1 

H-h 

I     Vr-l 

1—2 

2—5 

5  AND 
OVER 

ITEM 

D.A. 

B.D. 

D.A.  B.E 

K    D.A.  B.D.  1 

O.A.  B.D 

D.A.  B.D. 

D.A.  B.D. 

523 

1 

1 

524 
525 

1 

•  • 

i 

1 
1 

«   <•         a   a 

•   a         •  « 

526 

•  • 

1    1 

'   '         •  • 

•   •         a   • 

548 

1 

1 

"   •         a   • 

'   •         "   • 

•   ■         •  • 

540 

*   "         •  • 

i   i 
1  1 

•   •         •   • 

541 

542 

i 

i 

.  . 

■   •         •   ■ 

'   * 

543 

i 

'  i 

•   •         •  • 

544 

1 

1 

•  • 

1238 

1 

1 

•  . 

•  • 

1239 

1 

1 

•  •    •  • 

•  • 

1240 

1 

1 

•    «  > 

'  • 

•   •         a   • 

1241 

•  • 

1 

1 

■    •  ■ 

•  •    .  . 

•   • 

1252 

1 

1 

•    •  • 

■  '    •  • 

-   - 

1253 

i 

i  .'.' 

"   •         •  • 

1254 

1 

1   ... 



•   •         a   a 

1113 

1 

1   ..  .. 

a   ■ 

•  •    •  • 

•  . 

1114 

1 

"i 

•  ■    •  ' 

•  • 

1115 

1 

1 

•   •         a   • 

•   "          •  • 

1116 

1 

1 

•  > 

•   •         •   • 

■   a         a   ■ 

1117 

1 

1 

•         •   a 

■   " 

*   •         •   • 

1118 
1237 

■  • 

•  •       ■  ■ 

::   ::   • 

i  i 

1   i 

•   ■          a   a 

>  •         a   a 

13 

9 

4   1 

1   4 

2   6   4   4 

0   0 

6.  November  22,  1916  to  December  18,  1917 

1397 
1398 

1 

1 

1 

1 

1399 

1 

1 

1400 

1 

1 

1401a 

1 

1 

1402a 

1 

1403a 

1 

1404a 

1 

1 

1405a 

1 

1 

1406a 

•  • 

1407a 

1 

1408a 

•  • 

1 

i 
1 

1409a 

•  • 

1 

1410a 
1411a   1 

1 

1 

..  1 

.. 

..   .. 

..  .'."   i 

i 

;:l::  . 

.  • 

THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK   MARKET  83 


PERCENT  OF  AC 

:CURA 

lCY 

WITHIN 

1 

1 

1   5  AND 

HOF 

•  1 

H- 

H 

V2- 
D.A. 

1 

B.D. 

1—2 

2 — 5   1   OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

1412a 

•  • 

1 

•  • 

.  . 

•  ■ 

1 

1413a 

«  . 

1 

•  . 

•  • 

•  • 

1 

■  • 

•  • 

■  • 

•  • 

1414a 

1 

1 

.  • 

•  • 

i 

•  • 

•  • 

•  • 

1415a 

•  • 

■  . 

.  • 

•  • 

•  • 

1 

•  • 

•  • 

«  . 

1416a 

1 

a   a 

.  . 

1 

•  • 

•  • 

•  • 

a   a 

■  • 

1201 

•  • 

1 

■   a 

•  • 

1 

i 

a   a 

1 

•  • 

1202 

•  • 

■  • 

•  • 

a   a 

•  • 

•  • 

1203 

1 

1 

.  . 

•  • 

•  • 

•  • 

•  • 

•  • 

•  a 

1204 

1 

1 

.  • 

•  . 

•  ■ 

•  • 

•  • 

1205 

1 

1 

•  . 

•  • 

•   • 

•  • 

•  • 

1206 

,  . 

1 

•  • 

•  • 

1 

■  • 

•  • 

■  • 

•  • 

.  .> 

1207 

1 

1 

.  . 

.  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  ■ 

1208 

1 

1 

•  • 

•  • 

■  • 

•  • 

•  • 

•  • 

1209 

1 

1 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

1210 

1 

1 

•  • 

•  • 

■  • 

•  • 

•  • 

•  • 

•  ■ 

•  • 

1211 

1 

1 

.  . 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•   • 

1 
1 
1 

1212 

1 

•  • 

i 
1 

1213 

•  • 

•  • 

■  • 

1214 

•  ■ 

•  • 

•  • 

i 

1215 

•   a 

1 

•  • 

•  • 

•  • 

1216 

•  • 

•  • 

i 

i 

1 

1 

•  • 

1217 

•  • 

•  ■ 

•  • 

1218 

i 

•  • 

•  • 

•  • 

•  • 

•  • 

■  • 

1219 

1 

•  • 

•   a 

i 

4 

•  • 

•  • 

•  • 

1220 

a   • 

•  • 

•  ■ 

•  ■ 

•  • 

1221 

■  ■ 

4 

1 

1 

•  • 

•  • 

•  • 

1222 

,  • 

.  • 

•  • 

1 

i 

"i 

•  ■ 

•  • 

1223 

a   > 

•  • 

•  • 

•  • 

•  • 

1224 

•  • 

•  • 

•  • 

•  • 

•  • 

1225 

.   . 

•  • 

1 

•  • 

1226 

•  • 

1 

•  • 

1227 

.   . 

•  • 

1 

.  . 

1228 

■  • 

•  • 

•  • 

•  • 

1229 

■  • 

»  • 

•  • 

•  • 

•  • 

•  • 

■  • 

1230 

a   • 

•  • 

■  • 

•  • 

1231 

•  • 

•  • 

•  • 

•  • 

■  • 

1231a 

•   • 

a   • 

•  • 

•  • 

•  • 

•  • 

1232 

■   • 

•  • 

1 

a  ■ 

.  . 

•  • 

•  • 

1233 

a  ■ 

•   • 

•  • 

•  • 

•  • 

■   a 

1234 

.  . 

•  • 

•  • 

•  • 

1235 

a   a 

-   • 

•  • 

1 

1 

•  • 

•  ■ 

•   ■ 

1236 

X 

•  • 

a   • 

•   a 

•  • 

•  • 

1357 

a   • 

■  • 

■   a 

1358 

•  • 

•  • 

•  • 

•   a 

•  • 

•  • 

1359 

«  • 

a   • 

•  ■ 

•  • 

•  • 

•  • 

1360 

1 

•  • 

•  • 

a   • 

•  • 

•  • 

1361 

•  ■ 

•  • 

•  • 

■   a 

•  • 

•  • 

"  • 

•  • 

1366 

•  • 

•  • 

•  • 

a   • 

a   • 

■  a 

♦  • 

■  • 

1341 

•   • 

•  • 

•  • 

■  • 

1     1 

•   • 

•  • 

•  •' 

•  • 

39 

39 

4'  3 

7   4 

6  10 

5 

5 

3   3 

S4 


it, 

m 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 
8.  November  4,  1919  to  August  24,  1921 

PERCENT  OF  ACCURACY 
_^ WITHIN 


ITEM 


1356 

1352 

1353 

1354 

1355 

1329 

1330 

1331 

1137 

1138 

1139 

1140 

1141 

1142 

1143 

1144 

1145 

1119 

1120 

1121 

1122 

1123 

1124 

1125 

1126 

1127 

1128 

1129 

1130 

1131 

1132 

1133 

1134 

1333 

1334 

1335 

1852 

1853 


MOFl 


D.A. 


1 
1 
1 

i 

1 


1 
1 
1 
1 


1 
1 
1 


1 

i 


1 
1 
1 


19 


B.D. 


1 
1 


1 
1 
1 

i 

1 
1 


1 
1 

i 
1 
1 


1 
1 

1 


19 


H-'A 


D.A, 


B.D. 


H-1 
B.D 


D.A. 


1 
1 


1        2|     1 


1—2 


D.A. 


B.D. 


2—5 


D.A 


1 
1 


1 
1 


B.D. 


1 
1 


1 
1 


8 


5 


5   AND 
OVER 


D.A. 


B.D. 


1 

i 


IWCKJSASES           DEC.-DEP. 

11.  January  23,  1906  to  November  20. 

1907 

RAILS 

1504 
1505 

•       M    M  . 

•  . 

1506 

1 

1 

"  • 

X 

1 

1507 

*  ■ 

•  • 

i 
1 

1 

1508 

■  " 

i 

•  • 

528 

1 

i 

,  , 

•  • 

t  m 

0     0  1  0 

0   1    2  1  2 

2 

3 

1 

0 

1 

THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK  MARKET  85 

13.  December  31,  1909  to  December  23,  1914 

PERCENT  OF  ACCURACY 
WITHIN 


1412 


MOFl 

H- 

-H 

V2- 

-1 

1- 

-2 

2—5 

5  AND 
OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

i 
i 

D.A. 
1 

•  • 

i 

B.D. 

1 

*i 

"i 
1 

i 
i 

D.A. 

•  • 

1 

•  • 

i 
i 

B.D. 

i 

D.A. 

i 

•  • 

B.D. 

D.A. 

B.D. 

531 

532 

533 

534 

535 

538 

1510 

1511 

1512 

1406 

1407 

1408 

1409 

1410 

1411 

i 
1 

i 
1 
1 

■  • 
•  • 

1 
1 
1 
1 

•  • 

i 
"i 

•  • 

•  • 

•  • 

•  ■ 

1 

i 
1 

i 

9 

5 

0 

2 

2 

6 

3 

1 

1 

1 

0 

0 

15.  November  7,  1916  to  December  18,  1917 


17.  May  28,  1919  to  June  20,  1921 


1425 

•  ■ 

1 

,  , 

1 

, 

.  , 

1426 

.  . 

.  . 

1 

1 

1427 

^  ^ 

i 

.  . 

. . 

1 

1417 

•  • 

1 

1 

1418 

•  • 

i 

i 

. . 

. . 

1419 

i 

. . 

. . 

1 

1420 

1 

. . 

. . 

1 

1421 

i 

. . 

. . 

1 

1422 

1 

1 

. . 

. . 

1369 

1 

1 
4 

J__ 

2 

1   1 

1 

3 

2 

3 

2_ 

0__ 

2_ 

I       11       0|0|0|Oll|0'OiO'OIOIO 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


1608 
1611 
1617 
1618 
1619 
1610 
1722 
1723 
1724 
1725 
1726 
1727 
1728 


DECREASES         IMP.-BOOM 

1.  January  1,  1904  to  January  19,  1906 

PERCENT  OF  ACCURACY 
WITHIN 


IND. 


M< 

OF  1 

H-H 

H-1 

1—2 

2—5 

5  AND 
OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

1 
1 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

1601 
1602 
1603 
1613 
1614 
1615 
1616 

i 
i 

i 

i 

i 

1 

1 

i 

i 

1 

•    ■ 

i 
1 

0 

2 

0 

0 

0 

0 

2 

1 

3 

2 

2 

2 

3.  November  16.  1907  to  Nov.  19,  1909 


1 

i 

i 
1 
1 
1 
1 
1 


8 


1 
i 


7  I  0 


7" 


0 


1 
i 
i 


0 


0 


5. 

Decern 

ber  24,  1914  to  November  21.  1916 

1818 

■   • 

1 

1 

1819 
1705 

»   • 

1 

•    • 

i 

1 

..      ..        1 

•   • 

1706 

1 

1 

•   • 

1707 
1708 

i 

i 

1 

i 

1709 

«  • 

1 

•  • 

1 

1710 
1711 

i 

i 

..      ..        1 

1 

1712 

1 

1 

•  • 

1713 

■  • 

1 

1 

•  « 

1714 

1 

1 

•  • 

1715 

1 

•  • 

1 

1 

•  • 

•  • 

7 

5 

2        1 

1       3 

1       0       2 

1 

2 

THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK  MARKET  87 


7.  December  19,  1917  to  November  3,  1919 

PERCENT  OF  ACCURACY 
WITHIN 


5   AND 

Hot 

•1       }i-y2 

'A- 

-1 

1- 

-2 

2- 

-5 

OVER 

1 

ITEM 

D.A, 

B.D.       D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D.    D.A. 

B.D. 

1762 

1 

1 

»     ■ 

1763 

■    • 

■     •                        ■ 

i 

.  . 

i 

1764 

1 

1 

.  . 

1765 

1 

1 

1766 

1 

1 

-     . 

1767 

1 

■     ■                        • 

■     • 

i 

1768 

«    •                        • 

1 

i 

1769 

a     • 

1 

1 

1770 

i 

i 

4 

3 

£_ 

0  1    0 

0 

2 

0 

3 

4 

0__ 

2 

DECREASES  IMP.-BOOM 

10.  January  1,  1904  to  January  22,  1906 


RAILS 


9. 

August  25, 

1921 

— 

1861 

■              •   • 

,  , 

1 

.    . 

1 

1862 

■                     •   • 

•    . 

.  . 

. . 

1 

1 

1863 

. 

.    . 

1 

1 

. . 

.  • 

1812 

•    • 

.  ■ 

•  • 

1 

1 

1813 

1 

i 

•  • 

.  . 

. . 

•  ■ 

1814 

•                     •   • 

. . 

1 

. . 

1 

•  • 

1815 

. 

— 

0        1 

•  • 

•  • 

1 

1 

0           1 

0 

0_ 

0_ 

2 

2 

0       4 

4 

1620 

1 

•  •   1 

.. 

1 

,     , 

,     , 

.   . 

1626 

1 

1 

,   , 

.    . 

.   . 

.   . 

.  . 

.  . 

■  ■ 

. 

. 

1624 

1 

1 

0 

— 

. 

2 

3 

0 

0 

0 

0 

1 

0 

0 

0       0 

12. 

November  21,  1907  to  December  30,  1909 

1625 

•    • 

■     • 

• 

1 

1 

1627 

1 

1 

,    • 

.   , 

• 

.   . 

.  . 

1628 

•    • 

,   , 

1 

1 

.   . 

.  . 

1629 

1 

1 

,   • 

.    . 

.   . 

.  . 

1630 

•   ■ 

•    • 

.    • 

1 

1 

1631 

•   • 

■   • 

.   • 

.  . 

1 

.  . 

1 

1622 

1 

•   • 

1 

•                   •     • 

3 

2 

0 

0 

1 

1 

0 

0 

3 

1 

0       3 

«8  THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK  MARKET 

14.  December  24,  1914  to  November  6,  1916 

PERCENT  OF  ACCURACY 
WITHIN 


5  AND 

H< 

OF  1 

1 

D.A. 

— 1 

1—2 

2—5 

OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

1838 

1 

1 

1839 

1 

1 

1840 

•  « 

1 

1 

1841 

1 

1 

1842 

1 

i 

•  • 

•  • 

3 

3 

0 

0 

0 

0 

0 

0 

1 

1 

1 

1 

16.  December  19,  1917  to  May  27,  1919 


1821 
1822 
1823 

1 
1 

•  • 

i 

0 

1 

•  • 

i 

•  • 

1 

2 

1 

0 

0 

1 

0 

0 

1 

0 

0 

1 

THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK  MARKET  99 

4.  November  20,  1909  to  December  23,  1914 

PERCENT  OF  ACCURACY 
WITHIN 


ITEM 


1701 
1702 

1703 
1704 
1716 
1717 
1718 
1719 
1720 
1729 
1609 
1612 


1820 


^  OF  1 


D.A. 


1 
1 
1 


B.D. 


1 
1 


1 
1 
1 
1 
1 


1 
1 


8 


H-y2 


D.A. 


B.D 


0 


Vz-l 


D.A. 


0 


B.D. 


0 


1—2 


D.A. 


B.D, 


2—5 


D.A. 


0 


B.D 


1 
1 


5  AND 
OVER 


D.A.     B.D 


3  2 


6.  November  22,  1916  to  December  18,  1917 


0 


0        0        0      0        0 


0 


0      0      0 


8.  November  4,  1919  to  August  24,  1921 


18 

J 

une 

21, 

1921- 

— 

1825 

1 

1826 

1 

1855 

1 

1 

1856 

1 

1857 

1 

1367 

•  • 

1 

1 

1368 

1 

*/ 

4 

0 

0 

1 

1 

0 

0   1 

1 

0   1 

DECREASES  DEC.-DEP. 

2.  January  20,  1906  to  November  15,  1907 


IND. 


leci 

1605 
1721 

1 

1 

i 

i 
1 

i 
1 

i 

•  • 

•  • 

•  • 

1 

1 

0 

0 

1 

0 

0 

1 

0 

0 

1771 

1 

1772 

1 

1773 

•  ■ 

1774 

•  • 

1775 

•  « 

1776 

•  • 

1777 

1 

1778 

1 

1779 

•  • 

1780 

1781 

1782 

1783 

1784 

1785 

1786 

1787 

1788 

1789 

1790 

1791 

1792 

1793 


1 

1 

■  • 

•  • 

1 

•  • 

1 
1 

i 
1 

i 

•  • 

i 

•  ■ 

i 

•  • 

•  • 

•  ■ 

•  ■ 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

•  • 

i 
1 

•  • 

i 

1 

•  • 

1 

1 
1 

"i 
1 

1 

•  • 

1 

i 
1 

i 

"i 
1 

i 
1 

i 
1 

•  * 

•  • 

i 
1 

•  • 
«  • 

•  • 

•  • 

1 

•  • 

•  • 

•  ■ 

1 

90 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET  91 


^ 


ITEM 


1794 

1795 

1796 

1797 

1798 

1799 

1800 

1801 

1801a 

1802 

1803 

1804 

1805 

1806 

1807 

1808 

1809 

1810 

1811 

1816 

1817 

1730 

1731 

1732 

1733 

1734 

1735 

1737 

1738 

1739 

1740 

1741 

1742 

1743 

1744 

1745 

1746 

1747 

1748 

1749 

1750 

1751 

1752 

1753 

1754 

1755 

1756 


PERCENT  OF  ACCURACY 
WITHIN 


MOF  1 


D.A. 


1 
1 


1 

i 


1 
1 


1 
1 


B.D. 


1 
1 


1 
1 
1 


1 
1 
1 


1 
1 
1 
1 


H-'A 


D.A, 


B.D. 


34-1 


D.A 


B.D, 


1—2 


D.A. 


B.D. 


2—5 


D.A. 


1 


1 
1 


1 
1 


5   AND 
OVER 


B.D 


1 

i 


D.A, 


1 

i 


1 
i 


..  I  ^  I   i  I  .. 


B.D. 


1 
1 
1 


ITEM 


1757 

1758 

1759 

1760 

1761 

1859 

1860 

1864 

1865 

1866 

1867 

1868 

1869 

1870 

1871 


1621 


PERCENT  OF  ACCURACY 
WITHIN 


HOF  1 


D.A. 


1 

i 


1 
1 


B.D. 


H- 


D.A, 


27 


1 
1 


30 


B.D. 


3^-1 


D.A, 


B.D 


1—2 


D.A. 


2—5 


B.D. I  D.A. 


1        4 


11 


B.D 


1 
1 


5   AND 
OVER 


D.A, 


1 
1 


29 


1 
1 

i 

1 


1 
1 


B.D. 


1 
1 


22 


DECREASES  DEC.-DEF.  RAILS 

11.  January  23,  1906  to  November  20,  1907 


1 
1 


In  I  25 


\      01        0111     1010       OjOllOIOTOlO 


13. 

December  31,  1909  to  December  23, 

1914 

1827 

1828 

1829 

1830 

1831 

1832 

1833 

1834 

1835 

1836 

1837 

1843 

1844 

1845 

1846 

1847 

1848 

1622 

*i 

i 

1 

•  • 
«  « 

"i 

1 

•  • 

1 

•  • 

•  • 

•  • 
«  ■ 

•  * 

i 

•  • 

i 

•  • 

■  • 

i 

* 
i 

i 
i 

1 
i 

i 

i 

•  • 

•  • 

1 

•  • 

•  • 

•  • 

1 

1 

i 

•  • 

•  • 

1 

•  • 

1 
1 

i 
i 

3 

4 

4 

1 

1 

2 

4 

3 

3 

3  1  3 

5 

1 


n 


THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK  MARKET 
17.  May  28,  1919  to  June  20,  1921 

PERCENT  OF  ACCURACY 
WITHIN 


HOF  1 

r 

—  • 

M-1 

1—2 

2—5 

5  AND 
OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 
1 

D.A. 

B.D. 

1849 
1850 

•    • 

1 

•    • 

1 

1 

1 

•    • 

•    • 

1851 
1854 

•    • 

•    • 

•    • 

1 

•    • 

i 

•  • 

•  • 

1858 
1824 

i 

•  * 

•  • 

1 

•    • 

•    • 

1 

1 

»  ■ 

1 

•  • 

1 

•  • 

•  • 

1 

2 

1 

0 

0 

0 

2 

0 

2 

3 

0 

1 

Appendix  C 


STOCKS   DECLARING    "RIGHTS"   AND   STOCK    DIVIDENDS 


(Listed  on  New  York  Stock  Exchange,  unless  indicated  otherwise.) 


THE  DISCOUNTING  OP  DIVIDENDS  BY  THE  STOCK  MARKET 


93 


Rails 

D 
D.,  L.,  &  W. 


Great  Northern 


H 

I 

Illinois  Central 

J 
K 


Industrials 

D 

Detroit  Edison 
DuPont  de  Nemours 


Endicott  Johnson 
F 


General  Chemical 

General  Electric 

General  Motors 

Gillette  Safety  Razor  (Curb) 

Gray  &  Davis  (Bo.) 

H 

G.  W.  Helme  (Curb) 

I 

International  Harv^ester 
International  Motor  Truck 


K 
Keystone  T.  &  Rubber 


Rails 

A 

Atchison,  T.,  &  St.  Fe 
Atlantic  Coast  Line 


B 

Boston  &  Maine  (Bo.) 


Chic,  Milw.,  &  St.  P. 
Chic.  &  Northwestern 
Cleveland,  C,  C.  &  St.  L. 


Industrials 

A 

Amer.  Brake  Shoe  &  Fdy. 
Amer.  Cigar  (Curb) 
Amer.  Cotton  Oil 
Amer.  Gas  &  Elec. 
Amer.  Rad.  (Chic.) 
Amer.  Steel  Foundries 
Amer.  T.  &  T. 
Amer.  Tobacco 
Atlantic  Ref.  (Curb) 
Atlas  Powder  (Curb) 

B 


Continental  Oil  (Curb) 
Col.  Graphaphone 
Cramp  Ship  (Phila.) 
Crucible  Steel 
Cumberland  Pipe  Line  (Curb) 


Louisville  &  Nashville 


M 


N 
New  York  Central 
Norfolk  &  Western 
Northern  Central  (Bait.) 
Northern  Pacific 


Lee  Tire  &  Rubber 
Leow's  Theaters  (Bo.) 
Libby,  McNeill,  &  Libby  (Chic.) 
Lorillard,  P. 

M      • 

Manhattan  Shirt 
May  Dept.  Stores 
Mergenthaler  Lino.  (Bo.) 
Mexican  Pet. 
Middle  States  Oil 

N 

National  Biscuit 
National  Carbon  (Chic.) 
National  Lead 
North  American  Co. 

O 

Ohio  Oil  (Curb) 
Otis  Elevator 
Owens  Bottle 


a 


94 


THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK  MARKET 


Rails 
P 

Pennsylvania 


Q 
R 


Seaboard  Air  Line  (Bait.) 
Southern  Pacific 


U 

Union  Pac. 


Industrials 

P 

Pac.  Gas  &  Elec. 
Packard  Motor 
Pan  Amer.  Pet. 
Pittsburgh  Plate  Glass  (Pitts.) 
Prairie  Oil  &  Gas  (Curb) 
Prairie  Pipe  Line  (Curb) 
Pullman 
Pure  Oil 


Q 


Reynolds,  R.  J.,  Tobacco  (Curb) 


Sears  Roebuck  (Chic.) 
Solar  Refining  (Curb) 
South  Penn  Oil  (Curb) 
Southern  Porto  Rico  Sugar 
St.  Joseph  Lead 
Standard  Milling 
Standard  Oil  of  Kansas  (Curb) 
Standard  Oil  of  Neb.  (Curb) 
Standard  Oil  of  N.  J.  (Curb) 
Standard  Oil  of  N.  Y.  (Curb) 
Standard  Oil  of  Ohio  (Curb) 
Standard  Screw  (Curb) 
Stromberg  Carb. 
Studebaker 
Stutz  Motor 


Tenn.  Coal  &  Iron 
Tobacco  Prod.  Exp.  (Curb) 

U 

United  Gas  Imp.  (Phila.) 
Union  Oil  of  Cal. 
United  Cigar  Stores 
United  Fruit  (Bo.) 
United  Retail  Stores 
United  Shoe  Mach.  (Bo.) 
U.  S.  Rubber 


V 

Vacuum  Oil 


THE  DISCOUNTING  OF  DIVIDENDS  BY  THE  STOCK  MARKET  95 


w 


Y 
Z 


W 

Westinghouse  Elec. 
Weyman  Bruton  (Curb) 
Wilson  &  Co. 


Y 
Z 


Appendix  D 
"RIGHTS"  AND  STOCK  DIVIDENDS 


Original  items:    Classified  according  to  degree  of  discounting  effectiveness 

IMP.-BOOM  IND. 


18 
21 

23 


98 
99 
100 
101 
109 
110 


1.  January  1,  1904  to  January  19,  1906 


PERCENT  OF  ACCURACY 
WITHIN 

HOFl 

H- 

-y2 

Vt 

-1 

1- 

-2 

2- 

-5 

5    AND 
OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D, 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

3 

6 

7 

1 

1 

1 
1 

i 

"i 

•     • 

•     • 

•  • 

0 

■    • 

•  • 

*  • 

1 

3 

1 

0 

1 

0 

0 

0 

0 

0 

0 

3.  November  15,  1907  to  November  19,  1909 


1 
1 
1 


1 

i 


0 


1 


0 


0 


0 


0       0 


0 


5.  December  24,  1914  to  November  21,  1916 


1 

1 

i 
1 


1 
1 
1 
1 


0 


0 


0 


. .  !    1  I 


0 


0 


0 


0 


0 


THE  DISCOUNTING  OP  DIVIDENDS  BY  THE  STOCK  MARKET 
7.  December  19,  1917  to  November  30,  1919 


150 
154 
155 
156 
157 
162 
163 
166 
168 
169 
170 
171 
173 
174 
175 
176 
177 
180 
181 
185 
187 
190 
191 
196 
197 
198 
199 
201 
204 
206 
208 
210 
212 


PERCENT  OF  ACCURACY 
WITHIN 


5   AND 

Hi 

OF  1 

H- 

-H 

y2- 

-1 

1—2 

2—5 

OVER 

I 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

41 

•    • 

•     m 

«    • 

1 

1 

44 

1 

i 

47 

1 

•    ■ 

1 

49 

1 

1 

50 

»    ■ 

,    , 

1 

1 

•     • 

51 

•    • 

■     • 

1 

1 

3 

2 

0 

0 

0 

1 

1 

1 

2 

2 

0 

0 

9.  August  25,  1921- 


1 

1 

1 

1 

1 

i 

•  • 

1 

•  • 

1 

1 

1 

1 

1 

i 

i 

i 

i 

i 

•  • 

i 

i 

1 

1 

•  ■ 

1 

•  • 

1 

1 

1 

1 
1 


1 
1 
1 


1 
1 


1 

i 
i 


THE   DISCOUNTING  OF   DIVIDENDS   BY   THE  STOCK   MARKET  97 

PERCENT  OF  ACCURACY 
WITHIN 


5   AND 

^OF  1 

H- 

-'A 

H- 

— 1 

1—2 

2- 

-5 

OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

213 

1 

1 

.. 

.. 

,     , 

.  . 

,  , 

,  , 

.  . 

214 

1 

1 

.     , 

,     , 

.     . 

.     . 

.  . 

.     . 

.  . 

.  . 

■  • 

■  • 

216 

,     , 

.     . 

.     , 

1 

1 

.  . 

.  . 

.  . 

.  . 

218 

1 

1 

■  • 

a      ■ 

19 

20 

0 

0 

3 

1 

5 

3 

9 

5 

1 

8 

12 


IMP.-BOOM  RAILS 

10.  January  1,  1904  to  January  19,  1906 


1 

1 

,    , 

1 

.    . 

2 

1 

1 

,     , 

,     , 

.    , 

.    . 

.    . 

.    . 

.   . 

.   . 

4 

. 

,    , 

,    , 

.    , 

.    , 

.    . 

.   . 

1 

1 

.   . 

.   ■ 

5 

1 

1 

•  • 

•  • 

•  • 

•    ■ 

•  • 

•  • 

2 

2 

0 

1 

0 

0 

0 

0 

2 

1 

0 

0 

12. 

November  19,  1907  to  December  31,  1909 

22 

,     , 

,    , 

1 

1 

.    . 

. . 

.   . 

.   . 

.   . 

24 

1 

,    , 

,   , 

.    . 

1 

.   . 

. . 

•  • 

•  ■ 

•  • 

25 

1 

1 

,    , 

■  ■ 

•  . 

.  . 

•  . 

26 

1 

1 

•  • 

•  • 

•  • 

3 

2 

0 

0 

0 

2 

1 

0 

0 

0 

0 

0 

2.  January  20,  1906  to  November  15,  1907 

DEC.-DEP.  IND. 


I         1 


0   I    0  I    0  I    0  i    1  I    0  I    0  1    0  I    0  I   0  I    0 


4. 

November  20, 

1909  to  December  23, 

1914 

30 

■   • 

■   • 

1 

1 

. 

«    • 

•   • 

31 

1 

1 

. 

.    . 

32 

1 

1 

. 

36 

1 

. 

1 

.    . 

108 

1 

1 

111 

1 

1 

.  . 

■  . 

113 

1 

1 

. 

■  . 

.  . 

114 

■  - 

• 

•  • 

1 

1 

4 

5 

0 

0 

1 

1_ 

0_ 

0 

2 

1 

1 

1_ 

THE  DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK  MARKET 


THE   DISCOUNTING  OF  DIVIDENDS  BY   THE  STOCK   MARKET  99 


i 


LA 


117 

118 

119 

121 

123 

124 

125 

127 

128 

131 

132 

136 

138 

143 

144 

145 

147 

52 

53 

54 

55 

57 

58 

59 

64 

67 

71 

72 

73 

74 

75 

76 

78 

80 


6.  November  22,  1916  to  December  18,  1917 

PERCENT  OF  ACCURACY 
WITHiN 


PERCENT  OF  ACCURACY 
WITHIN 


5   AND 

^OFl 

H-'A 

H-1 

1- 

-2 

B.D. 

2- 

D.A. 

-5 

B.D. 

OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

D.A. 

B.D. 

102 

1 

1 

103 

^    , 

.    , 

i 

i 

■     ■ 

105 

1 

1 

.  . 

. . 

■    • 

106 

1 

1 

.  . 

.   . 

. . 

.    , 

107 

1 

1 

0 

0 

1 

3 

3 

0 

0 

0 

1 

1 

0 

1 

1 
1 
1 
1 
1 


1 
1 
1 
1 


8.  November  4,  1919  to  August  24,  1921 


1 
1 
1 
1 
1 


MOFl 

H-'A 

^-l 

1-2 

2- 

-5 

5   AND 
OVER 

ITEM 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

D.A. 

B.D. 

•    • 

i 

•  • 

1 

1 

D.A. 

B.D. 

81 
S3 
U 
86 
87 
88 
89 
90 
91 
92 
95 
94 

•  • 

•  • 

i 

•  • 
■  • 

"i 
1 
1 

1 

1 
1 
1 

•  • 

•  • 

•  ■ 

•  • 

1 

1 
1 

i 

i 

i 

1 
1 

i 
i 

1 

•    • 

i 

1 

20 

24 

0 

0 

4 

1 

8 

6 

10 

11 

4 

^^ 

4 

104 


15.  November  7,  1916  to  December  18,  1917 


DEC.-DEP 

, 

RAILS 

11.  January  23,  1906  to  November  20,  1907 

8 

•   • 

1 

.  • 

1 

9 

1 

1 

.  . 

.  . 

10 

•   ■ 

1 

1 

11 

,   , 

•   • 

1 

1 

n 

1 

1 

14 

1 

1 

15 

1 

1 

16 

1 

1 

17 

1 

1 

19 

•  • 

«  • 

1 

1 

20 

1 

1 

0 

■  • 

7 

7 

0 

0 

1 

0 

3 

3 

1^     0 

_ 

IL 

13. 

December  31,  1909  to  December  23, 

1914 

28 

1 

1 

.  ■ 

•  ■ 

33 

. 

•    • 

1 

1 

5$ 

1 

1 

•  ■ 

39 

1 

1 

40 

1 

1 

0 

•  • 

•  • 

4 

4 

0 

0 

0 

0 

0 

0 

0 

1 

1 

"j — 1     I     0     I     0     I     0  I     0  I     0  I     0  I     1   1     0  I     t)  (     0  I     0 


V I 

l'    ' 


100  THE  DISCOUNTING  OF   DIVIDENDS  BY   THE  STOCK   MARKET 


BIBLIOGRAPHY 

A.  Primary: 

1.  Commercial  and  Financial  Chronicle,  weekly  issues,   1904-1922,  incl. 
New  York. 

2.  Philadelphia  News  Bureau.     Daily  News  Bulletins,   1904-1922,   incl. 
Philadelphia. 

3.  Wall  Street  Journal,  daily,  1904-1922,  incl.    New  York. 


1 


B.  Secondary: 

1.  Brookmire,  James  H.     "Methods  of  Business  Forecasting  Based  on 
Fundamental  Statistics."    American  Economic  Review,  March,  1913,  Vol.  II. 

2.  Conant,  Charles  A.    "Wall  Street  and  the  Country."    G.  P.   Putnam. 
New  York,  1904. 

3.  Dewing,   Arthur   Stone.      "The   Financial    Policy   of   Corporations." 
Vol.  IV.    Ronald  Press.    New  York,  1921. 

4.  Hamilton,  William  P.     "The  Stock  Market  Barometer."     Tables  of 
Dow-Jones  Average  Prices  in  Appendix.    Harpers.    New  York,  1922. 

5.  Huebner,  S.  S.    "The  Stock  Market."    D.  Appleton  &  Co.    New  York, 
1922. 

6.  Jordan,  David  F.    "Business  Forecasting."    Prentice-Hall,  Inc.     New 
York,  1921. 

7.  Meeker,  J.  Edward.     "The  Work  of  the  Stock  Exchange."      Ronald 
Press.    New  York,  1922. 

8.  Nelson,  S.  A.     "The  A,  B,  C,  of  Stock  Speculation."    S.  A.   Nelson. 
New  York. 


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PRINTBD  BY 

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PHILADELPHIA,,  PA. 


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The  discoiinting  of  dividends  by 


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END  OF 
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